Editorial: Time may be right to ask what tax cuts will cost us

Opinion

It is little wonder that Prime Minister John Key has refused to guarantee that the tax cuts promised for next year and 2011 will go ahead.

The tax-cut programme that National took to the country in November amounted to $4.4 billion over five years. When implemented, it will make someone now earning $50,000 some $30 a week better off - $46.50 richer if Labour's tax cuts of last October are added in.

But this week Key avoided guaranteeing that the tax cuts after those scheduled for April 1 would go ahead. It was his "belief" and "expectation" that they would but, he added, "we live in dynamic times".

What is worth considering between this April and next is whether the planned changes to tax rates have been effectively targeted. The tax cuts as announced promised relief to hard-pressed middle-income New Zealanders - the economy's salt of the earth who had been crushed by rising interest rates and higher fuel prices. They disproportionately favour people who have children and earn between $50,000 and $70,000. Above $80,000, the benefits begin to disappear. But, significantly, workers who have children and earn less than $40,000 do not benefit; indeed, they will actually lose money.

The cynical might incline to the view that National was unlikely to waste largess on cultivating a socio-economic sector where it would not harvest votes, but now that the party is in power, that becomes a pointless argument. In the real world, two things are evident from the pattern of redundancy and economic slowdown already being witnessed: that nobody will be immune to its effects and that the burden will fall most heavily on those who can least afford it – those at the bottom of the economic pile.

It may be timely, then, for each of us to consider whether the projected tax cuts are necessarily in everyone's best interests. Taken as an entire programme over several years, they add $50 a week to modest incomes - no small improvement - but, considered separately, each cut delivers only a few dollars into a household budget, while draining hundreds of millions or more from Government accounts.

It should go without saying that governments are like people: if they earn less they must spend less or borrow more - both of which are unpalatable options. A cut in Government revenue means a cut in Government spending, notably on social services: and, though there will always be pages of the Government's books where belt-tightening can - indeed, should - occur, a time of recession, higher unemployment and economic hardship is not that time. Perhaps now

is the time to consider whether we should individually assume responsibility for making cost savings, rather than expecting the country to do it for us.

In short, the gloomy news that daily fills our papers issues a challenge to us all. Governments must manage the big picture, but this can also be a time when the rest of us can think a little more about each other and a little less about ourselves. New Zealand society has undergone profound changes since the last time we faced a recession on this scale. The economic reforms of the 1980s ushered in years when the market ruled, greed was good and the strongest survived, indeed prospered.

Yet the Great Depression took place in a world where working for the common good and looking to the needs of others was still in fashion. Perhaps it is time for it to come back into fashion, for us to offer ourselves and each other some succour amid the gloom.

We would be foolish to believe that our remoteness will protect us from the shocks to come. But it has given us a tradition of initiative and resilience, of the ability to make do and to look after each other. We would do well to rediscover that legacy - and to accept that we are all in this together.