OPINION
National’s tax policy was much worse than expected. It reveals a party undeserving of being taken seriously. It has no plan to “fix the economy”, nor any idea of what one might look like. It seems uninterested in achieving power to avert economic disaster, and content merely to hold office.
The polls suggest a majority of voters know it.
National faces probably the most incompetent Government in New Zealand’s history. Our trade, fiscal and general economic outlook is the worst since the 1984 and 1990 financial and political crises.
National and its allies should be at least 10 points ahead.
Instead, National and Act are roughly equal to Labour, the Greens and Te Pāti Māori, with New Zealand First set to be kingmaker, whatever anyone says before the election.
Jacinda Ardern quit rather than face the electoral consequences of her Government’s failure to deliver its key promises and the hubristic excesses of its Covid response.
Inflation isn’t close to being under control. As in the 1970s and 1980s, it risks becoming embedded. Interest rates will go higher before Christmas.
The current account deficit for the March 2023 year - after Covid was behind us - widened to $33 billion, 8.5 per cent of GDP, up from $24b or 6.8 per cent of GDP the previous year. That’s the worst ever recorded.
In the last decade we have dropped another six places on the OECD’s productivity league tables. We now have among the worst productivity in the developed world, according to the Government’s own Productivity Commission.
In 2024, the IMF says New Zealand will be the worst-performing economy in the entire world in terms of GDP growth, except for Equatorial Guinea, a small African dictatorship on the brink of economic and social collapse.
Grant Robertson’s profligacy has made public debt material again and his fiscal deficit already appears structural.
Debt servicing is again becoming a major area of government expenditure, as it was before Ruth Richardson, Bill Birch and Michael Cullen repaid Robert Muldoon’s, Roger Douglas’ and David Caygill’s reckless borrowing.
Ever-growing debt servicing will make it impossible for any government to meet rising health, education, superannuation, police and defence needs or invest in climate-change adaptation and other urgently-needed infrastructure. Each year, ever more of the tax we pay will go to bondholders.
This was the picture before we knew that the tax take had collapsed after lower-than-expected economic activity since Christmas, and that China faces its first recession since Mao Zedong died in 1976 and it began its reform programme. No one knows what a Chinese recession means for its domestic and geopolitical stability.
But everyone does know even worse economic data will be revealed in Treasury’s Pre-Election Economic and Fiscal Update on September 12.
Serious people know there are no circumstances in which tax cuts or increased handouts could be justified in the short or medium term.
Even Grant Robertson bothered to go looking for a further $4b of spending cuts over the next four years, in addition to the $4b he announced in May.
On top of that, National is now promising another $8b of cuts over the next four years, for a grand total of $16b.
It’s not as much as it sounds, with the Government expected to spend nearly $600b over the next four years. Some departments aren’t even on the list for cuts.
Unlike Act, National hasn’t identified what it believes can be cut on top of Robertson’s effort. It says it will go through the budgets after the election, and “instruct departmental chief executives to go line-by-line through existing expenditure to identify spending areas that are not critical to core frontline delivery”.
Inevitably, the chief executives will offer only politically unacceptable cuts, known as the Washington Monument strategy by American bureaucrats.
Stand by for the Department of Internal Affairs to suggest charging everyone $250 to attend Waitangi Day.
That makes cutting any spending hard work. Every dollar of the $16b will have someone lobbying for it.
Incoming ministers will have to work ferociously hard, get into the details of their budgets and be intellectually agile to get the bureaucracy to deliver anything. Rising inflation will make it even more difficult.
In practice, the only way to guarantee savings is to abolish whole agencies and programmes, as Act proposes.
National concedes savings alone won’t fund its tax cuts, so also announced four new taxes. None applies to tax-exempt “charities” such as Go Bus, Shotover Jet, Sanitarium and Mission Estate Winery.
The first new tax, which National developed with assistance from Auckland’s Sky City Casino, is on offshore gambling websites. Labour says it already taxes them, collecting nearly $40 million a year in GST.
The second new tax is charging foreigners higher visa fees.
These two would raise a few hundred million dollars.
The third is bigger, which is reversing Labour’s Covid-era tax break for commercial property investors, forecast to raise just over $2b over the next four years.
The fourth is the proposed tax on foreign buyers purchasing properties worth over $2m.
The tax won’t apply to Australians, Singaporeans and perhaps citizens of other countries with which New Zealand has tax and trade treaties, but National says it will bring in $3b.
For that to be true, foreigners from countries other than Australia, Singapore and so forth would need to buy around $20b of houses over the next four years.
That’s more than 6000 houses with an average value of $3m. That assumption seems heroic, even if encouraging people to sell houses to foreigners to fund tax cuts is a good idea.
Let’s be charitable, and assume the full $16b-plus in cuts are actually made and the $6b-plus in extra revenue rolls in the door, starting mid-2024.
It will be a time of high inflation, high interest rates and horrifying fiscal deficits, forecast to continue until the end of the decade.
Any fiscally-responsible Finance Minister would use the full $22b to pay off debt. To instead give tax cuts to the poor and middle-class, with probably the highest marginal propensities to consume of any actors in the New Zealand economy, is grossly irresponsible.
It is certain to fuel higher inflation, higher interest rates and lock in a structural fiscal deficit for a generation. National says the tax cuts will go ahead “no matter how badly Labour has wrecked the joint”.
That may make Christopher Luxon Prime Minister, leading a one-term National-Act-NZ First fiasco.
He would deserve to survive even less than that if he is serious about the cynical con he unveiled on Wednesday.
- Matthew Hooton has over 30 years’ experience in political and corporate communications and strategy for clients in Australasia, Asia, Europe and North America, including the National and Act parties, and the Mayor of Auckland.
Liam Dann takes a deeper dive into the week's economic news