This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
I have not really made up my mind about Christopher Luxon.
Over a decade ago, I would have said that business was a poor preparation for becoming a prime minister. (Farmers aside, the last business PM had been Sid Holland.) Politics was a profession and required an apprenticeship. My confidence in these propositions has been shaken by John Key. Admittedly he was an MP six years before he became PM and while in opposition he watched and learned from the Clark-Cullen partnership. Luxon, who has had more practical business experience than Key – running Air New Zealand is more relevant than finance – will have been an MP for only three years if he becomes PM in 2023 and he does not have the same exemplars on the other side of the House.
I was, however, disturbed when he claimed recently that New Zealand had never been so ‘politically divided’. He was born 19 years after the Waterfront Dispute and was only 11 during the 1981 Springbok Tour. But age is not an excuse. A successful politician needs a good memory (part of the function of the apprenticeship) supplemented by a good knowledge of history.
I make these introductory remarks because this column could easily be presented as an attack on Luxon. Rather, its focus is on the dishonesty of so much of the economic debate. Admittedly Luxon triggered the column, but he is not unique.
The trigger was his promise to repeal all the new taxes imposed by the current government. That is a political stance which I may respect even if I may not agree. My concern here is that there was little mention of how the tax cuts would be paid for.
No estimate was given of their size. Here is an attempt. The Treasury reports that tax revenue was 27.2% of GDP in the three years to June 2018 (National’s last budget year) and expects it to be 28.7% in three years to June 2024, when Luxon plans to take over. The 1.5 percentage points represent an additional revenue of $6.2 billion in the June 2024 year when Crown expenses are expected to be $124.8 billion, so Luxon is proposing a 5% reduction in government spending. Or is he? How is he proposing to fund the cuts? I am not holding my breath for an answer.
A number of analysts have pointed out that the tax cuts will massively favour the rich, which need not surprise us, given the way the tax system works. The spending cuts will additionally impose on the poor (recall the Ruthanasia-Jennicide package of 1991 to pay for the Rogernomics tax cuts for the rich). Such a distributional switch is a political stance that some will support. But will the poorer turkeys be voting for Christmas in 2023?
Luxon and his allies are not alone in failing to represent the full picture. Open your daily newspaper and count the stories demanding increased government spending. (Some of them make me weep.) Any given day they do not total $6.2 billion a year, say, but I should not be surprised if the total of the demands in a year comes near to that. (That does not allow for the looming fiscal pressures arising from population change which are hardly publicly discussed.) Again, there is no mention of the other side, that the government needs additional tax revenue to meet all these demands – a lot of revenue.
You can now see why the public discussion is dishonest. One side says ‘tax cuts’, without mentioning the public spending implications; the other side says ‘more spending’ without mentioning the public revenue implications.
Between the two is the struggling Treasury trying to reconcile the two demands without publicly talking about the issue. (If they solve the problem, they can put their mind to the less challenging one of how to square the circle.) Right now, twenty-odd cabinet ministers are making spending demands for their portfolio while simultaneously demanding that the others cut their spending, cut taxes and boost benefits to increase private disposable incomes. Slowly and painfully, they will come to a conclusion which will be announced in the May budget.
At which point the dishonesty will reopen. One group of commentators will say there should be bigger tax reductions, but they won't say what spending should have been cut to pay for them. The other side will bemoan there was not enough spending on the programs they advocate, but they will rarely mention the additional revenue requirements.
It is not a healthy way to run a democracy.
Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.