Saturday, 2 August 2008

Borrowing for infrastructure while cutting taxes - transparently stupid

National will borrow money to fund infrastructure development, while cutting taxes at the same time:
National will fast track a second round of tax cuts and is likely to increase borrowing to pay for some of its spending promises, the party's leader John Key says.

But Mr Key said the borrowing would be for new infrastructure projects rather than National's quicker and larger tax cuts which would be "hermetically sealed" from the debt programme.

In opening remarks to the party's annual conference in Wellington today Mr Key said National would incorporate Labour's October 1 tax cuts, bring forward a second round to April 2009 - a year earlier than Labour - and a third round to April 2010.

Labour's planned third round would not take effect until April 2011.

National is yet to explain how it will pay for the promised larger cuts. (1)
National are trying to argue that this isn't the same as borrowing for tax cuts

I suspect a lot of people won't see it that way, and National's economic credibility will take a hammering as people join the (rather large and obvious) dots.

Borrowing money to fund tax cuts - whether or not it goes directly to the tax cuts, or to other projects (like, for example, infrastructure) - is still borrowing money to fund tax cuts.

The whole thing sounds like a Tui ad.
1 - "Nats to borrow for other spending - but not tax cuts," unattributed NZPA story, published in the New Zealand Herald, 2nd of August, 2008. (


Anonymous said...

Hello Lurgee

You know me from my other persona as "Michael" on the SM website. Getting a bit drained of the circular arguments lately, and the lack of constructive debate.

With regards to John Key, I live in his electorate, so I have been able to attend a couple of his addresses (usually to business people). TV hasn't done the man justice yet - he speaks very comfortably and immpressively when you see him live. If you get the chance, you should do so.

He gets my vote, and I am the ultimate swing voter. Off the top of my head I have voted Labour, National, Greens, Social Credit, and ACT.

I whole heartedly agree with the borrow for infrastructure policy. This is the main policy reason I will vote for him. Key knows you can't wipe out social benefits like Working for Families because you would drive too many families into poverty. So the only logical way forward is to "grow a bigger pot" to derive a greater tax revenue. A big spend on key infrastructure (roads, broadband, energy) not only helps improve productivity, but also it kickstarts the economy. Borrowing for expansion is normal business practice, so I can't see what the fuss is about.

Regards, Pat

lurgee said...

I have no objection to the idea of the government spending money, especially if this is going to boost the economy. We shouldn't be fooled into thinking this is an AMAZING NEW IDEA that John Key et al have had. Labour are already spending plenty infrastructure. I'd like to see more,, which you'd think twould incline me towards National. But (perhaps this is my Scottishness showing through) I object to the idea that we should up borrowing while cutting taxes. I appreciate the standard argument - that cutting taxes may reduce revenue in the short term but will benefit the economy in the longer term. I just don't think it lives up to the claims made of it.

I have no doubt that Key is intelligent, but the skills needed to survive as a leader are different from those needed to thrive as a currency speculator. I simply can't imagine Key leading to country. To show this isn't just party prejudice, the same applies to Clark's likely successor, Phil Goff. But then, what do I know? I genuinely believed that Gordon Brown replacing Tony Blair would make a difference in Britain ...

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