Nicola Willis should have kept her head down on tax cuts this week, writes Mike Williams. Photo / NZME
Nicola Willis should have kept her head down on tax cuts this week, writes Mike Williams. Photo / NZME
OPINION: In one of the most radical political reversals anywhere in years, the new UK Prime Minister Liz Truss announced large tax cuts for the wealthiest Britons then, when faced with a collapsing currency and a huge public backlash, abandoned this policy mere days after the initial announcement.
The taxeson those earning in excess of £150,000 (about $295,000) were to fall from 45 per cent to 40 per cent. (Had this been put into effect, the top tax rate in the UK would still have been higher than New Zealand's current top rate of 39 per cent.)
Polls showed the opposition Labour Party with a double-digit lead over Truss' Conservatives, panic set in amongst the Tory backbenchers and, faced with defeat by her own MPs, Truss had no option but to back down.
Under these circumstances, the National Party's finance spokesperson Nicola Willis would have done well to keep her head down.
But instead she went public and doubled down on her party's intention to adopt much the same abandoned UK policy of cutting taxes for the wealthy if elected next year. This was echoed by leader Christopher Luxon.
This tax policy, announced by National earlier this year would reduce Government income annually by more than $3 billion.
Mike Williams. Photo / Warren Buckland
As in previous years National's tax-cutting policy is again heavily skewed in favour of the already well-off.
Luxon, just counting his parliamentary salary (not including income from his many rental properties) would be $18,000 a year better off, while those folk on $40,000 would get an increase of $2 a week.
Since the 1990s the National Party has developed a fixation with tax cuts despite Don Brash advocating an extreme version of this approach and going on to lose the 2005 General Election.
There are several reasons for this preoccupation. First, many National Party activists apparently believe in the "trickle down effect".
This amounts to faith that if you make well-off people even richer, much of this wealth will "trickle down" into the hands of the less well-off.
This belief has no basis in research whatsoever.
Extra income going to the already rich will tend to be piled up, spent on overseas trips, or put into the stock market.
If you are already having your hair done every Friday, it's unlikely you'll repeat the exercise on Mondays as well.
Very little will end up in the hands of bus drivers, cleaners, or nurses.
Second, a tax-cutting policy will often be greeted with poll support, at least until the voters work out that the necessary spending cuts may well hit policies and programmes that they value.
This is what happened to Don Brash's tax-cutting 2005 campaign. When the roughly 200,000 state house occupants realised that National, if elected, would increase their rents by abolishing income-related rents and bringing back market rates, they turned out to vote in unprecedented numbers and re-elected the Labour-led Government for a third term.
Third, a policy of reduced taxes for the rich encourages rich people to make large donations to National.
Both Luxon and Willis have been coy about what spending will be cut or which Government income will be increased to finance its tax policies.
They talk of trivial sums or fudge answers with references to unspecified wasteful spending.
We do, however, have a very useful insight into National Party thinking by examining how the John Key National Government funded similar tax cuts for the rich in their term in government.
This Government implemented a number of policies which were either ruled out or went unmentioned during the 2008 election campaign.
A significant money grab was the increase in GST from 12.5 per cent to 15 per cent in 2010. A GST increase had been specifically ruled out by John Key and National before the 2008 election.
As people on low incomes spend virtually every dollar they receive, this means poor people paid for the tax cuts for the already wealthy.
In addition, National in government abolished the KiwiSaver sign-up bonus of $1000 and cut government contributions, despite John Key's promise that there wouldn't be "radical changes".
If you, like most working Kiwis, have a KiwiSaver account, that National Government's duplicity cost your retirement fund a lot of money.
The Key Government's treatment of Kainga Ora laid the groundwork for the housing crisis that the current Government struggles with. National sold off state houses and treated Kainga Ora as a cash cow, grabbing $500 million in "profits" from tenants during their term.
Their string of "zero budgets" saw road-building investment frozen and hospitals run down.
This time when National talks about cutting tax, make very sure you know who's going to pay before you cast your vote.
* Mike Williams grew up in Hawke's Bay. He is chief executive of the NZ Howard League and a former Labour Party president.
