Tax cuts? Yeah, right

You’re gonna pay

It’s my birthday today. I’m contemplating how much the gifts in the offing are going to cost me. Michael Cullen, with no obvious signs of embarrassment, is finally talking tax cuts from those extra billions of your money which Treasury have “misled” him over for years. Nothing to do with poll ratings and looming elections of course.

The National Party will now be sucked into the race and we’ll all be the losers in the end. Just in case you’ve missed all the expert comment here are a few points to ponder:

  • Any amount a tax relief worth having will be inflationary. The inflation pressure is already there thanks to oil prices, open slather borrowing for consumer items and punishing interest rates.
  • $15 a week more in the average earner’s pocket is a risible amount for all but those on the very lowest income rung.
  • If consumption driven spending occurs following a tax cut the Reserve Bank is obliged to drive up interest rates yet again. The rates are already obscene and the exodus across the ditch would turn from a flood into a raging torrent.
  • Interest rate rises will lead to increases in your mortgage or your rent and wipe out any tax cuts – and then some.
  • Who profits from our disgustingly high interest rates?
    • Overseas investors.
  • Who loses from said usury?
    • Mortgagees, tenants, consumers, business owners, investors in local business, employers and employees.
    • In other words, everybody.
    • That’s you and me.
  • Interest rates go up, so does the Kiwi dollar. Exporters take it on the chin again. More cheap plasma TVs, more borrowing, even more inflation. You get the picture.
  • Eventually the Kiwi will come down. Then what happens to oil prices?

There are alternatives

  • Give a substantial tax cut.
  • Tie that tax cut to compulsory KiwiSaver investment. Never mind that most KiwiSaver accounts are making less than money in the bank. That will change. Markets go up, markets go down, in the long term KiwiSaver will be a boon.
    • If we’d done this when Big Norm wanted to (even Winston First – one of his better ideas) we’d now have hundreds of billions available for local investment
  • Don’t keep on killing the golden goose with interest rate rises. Instead of controlling borrowing by making it more expensive, control it by making it more difficult.
  • Stop the disgusting bribery in the hire purchase industry. No payments for 3 years. No interest. Who are they kidding? If you fall for that bribery you’re paying up front. The TV that you buy under those deals is being sold at a huge profit. Do you believe that Harvey Norman are in the business of doing favours for the downtrodden consumer?
    • Go back to the days when you had to have a 20% deposit for HP. Sure, it’ll contribute to a downturn in retail, but the medicine has to be taken sooner or later.
  • Stop non-residents buying our land. We’re a low wage economy. You can’t tell me that people from higher income economies like the USA, Australia, the UK, et al are snapping up high country stations, coastal farms and cheap rentals in Whanganui for New Zealand’s benefit. And if you don’t believe that those purchases are inflationary I’d love to hear your argument.
  • Instead of talking up a storm about it, we need more action to grow the cake. The only way to increase each individual’s share of the cake without creating inflation is to increase productivity. Instead of wasting $1.5 billion on negligible tax cuts, invest that kind of money into R & D and into reducing compliance costs for business.
  • Slash interest rates. Use alternative measures to curb spending.