Editorial: PM's promise of tax cuts shows lack of judgment

The Prime Minister believes middle New Zealand feels it is owed a reduced tax burden. Photo / Mark Mitchell

As expected, the National Party's announcement yesterday on proposed tax cuts was short on specifics and long on conditionality. Absent was an indication of how much any individual taxpayer might get in the hand, just a pointer to the cuts being "modest". Further, said the Prime Minister, they would not apply before April 1, 2017, and be made then only if "economic and fiscal conditions apply".

But that did not make the statement any less significant. Or diminish the degree of misjudgment. In any list of the incoming Government's top priorities after the September 20 election, tax cuts should not rate a mention.

John Key envisages setting aside $500 million per Budget for tax reduction or the further repayment of debt. That sum would be in addition to the $1 billion each Budget for further spending, including $600 million to $700 million for health and education.

This is predicated on the building of larger surpluses after a return to surplus, albeit a wafer-thin one, this year. Yet the country remains vulnerable to economic shock, and growth forecasts have already had to be pegged back because of the heavy fall in dairy prices. In that context, there should be no debate about the destination of any free cash.

Responsible fiscal management demands that the top priority must be getting debt back to under 20 per cent of gross domestic product as soon as possible, rather than the target of 2020. At present, it stands at 26 per cent, the product of $60 billion of new debt accumulated during the six years of recession deficits.

Even if debt is reducing at a quicker rate, there is another more important priority than tax cuts. That is the resumption of contributions to the Cullen Fund. The retirement of the baby boomers makes this an ever more pressing issue. The Government has signalled that the 20 per cent debt mark will trigger resumption. If at all possible, an earlier start should be made.

National, unfortunately, does not rate this a priority. Mr Key says the party's top two priorities over the next three years are to return to surplus this year and maintain surpluses thereafter, and to meet the 20 per cent debt target by 2020. Its third is to reduce accident compensation levies from April 2016, a subject of some irony given that, in the interests of this year's surplus, it recently ignored the ACC's recommendation for cuts to those very levies. Tax cuts will be made only with those priorities achieved, and with favourable economic and fiscal conditions.

The Prime Minister believes middle New Zealand feels it is owed a reduced tax burden. For once, his antenna seems awry. A new Reid Research poll indicates that 52 per cent of voters do not want tax cuts, while 44 per cent do. Of National supporters, 59 per cent do not support cuts, while just 38 per cent do. In response, Mr Key has offered a vague criticism of how the poll question was framed.

But whatever the quibbling along those lines, the message seems clear enough. It is a powerful endorsement of the good sense of many people. They are aware that while the country has emerged from the global recession in relatively strong shape, there are far more important priorities than tax cuts. Some have probably picked up on the apparent reservations of Bill English, who seems some distance from the Prime Minister on this issue. The dictates of strong economic management, the very focus of much of National's election campaigning, support the Finance Minister's view.

This is not a time for any party to be making tax cut pledges, whatever the provisos. Least of all one that boasts of its expertise in this area.

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