Nicola Willis and National's tax scam

Mar 04, 2023

National appears to be up to it’s old tax-tricks again.

On 23 February, National's finance spokesperson, Nicola Willis, was reported by RNZ that a National government would still be committed to tax cuts. She stated;

“The cost of living crisis has now become entrenched and prolonged and National remains of the view that New Zealanders who are paying more tax than ever deserve some relief.”

But then she explained - albeit vaguely - how a National-led government would fund tax-cuts:

“No, we will not be borrowing for tax cuts - we will deliver tax reduction through more disciplined government spending.”

If Mr Willis’ assertion that National "will not be borrowing for tax cuts" sound familiar - it should. It was the same "talking point" made by former National Leader, John Key, in the run-up to the 2008 election:

“National’s rebalancing of the tax system is self-funding and requires no cuts to public services or additional borrowing.” - John Key, 21 October 2008

A National Party policy document re-iterated Key’s committment for not borrowing to fund tax cuts:

This makes it absolutely clear that to fund National’s tax package there is no requirement for additional borrowing and there is no requirement to cut public services.

Bearing in mind that the Global financial crisis had been in in full swing since 2007, the global economy was tanking (except Australia and China); unemployment was on the rise; and a dark cloud of recession was looming.

In Aotearoa New Zealand, the GFC’s impact was brutal, pushing unemployment from 3.8% to 6.8%.

Against this backdrop of global and domestic decline in economic activity and rising unemployment, John Key was intransigent in maintaining his Party’s committment to cutting taxes.

The consequences were inevitable. The National government was borrowing money faster than it could be printed:

The Government needs to borrow $250 million a week after the havoc wreaked by the recession on its books.

Note the date: 15 October 2009 - a full year before National’s tax cuts were to be implemented on 1 October 2010.

Nevertheless, Nationals tax cuts went ahead.

By May 2011, the headlines were even more bleak. Predictably, government borrowing took off thunderously like a Saturn 5 rocket on full throttle:

The Government is borrowing $380 million a week and next week's budget will carry a record deficit of about $16 billion, Parliament was told today.

Finance Minister Bill English said the Government's financial position had deteriorated "significantly" since late 2008.

"The pre-election update in 2008 forecast that the deficit for this year would be $2.4 billion," he said. "It's much more likely to be around $15b or $16b."

Even the figure of $380 million a week may not have been the true story, as BNZ Capital economist, Craig Ebert, suggested:

The Government is borrowing about $450 million a week, well up from the $250 million a week previously revealed, BNZ Capital economist Craig Ebert says.
Finance Minister Bill English has recently been telling New Zealand the Government was borrowing on average $250 million a week, every week, over the next four years to ensure it could provide public services and maintain welfare entitlements.
Mr English's figures equate to funding for about nine Forsyth Barr Stadiums being borrowed by the Government each month.
Mr Ebert said that borrowing had risen to $450 million a week as the Government attempted to front-load its debt requirements in case of unforeseen circumstances overseas.

All up, Parliamentary Library researchers revealed that National’s tax cuts in 2010 cost the country between $1.6 billion to $2.2 billion in lost revenue. Little wonder that our healthcare system was so badly under-funded that hospital buildings were rotting from inside out.

So much for National’s tax cuts being “hermetically sealed”.

On top of which, National was conducting an unpublicised plan forcing SOEs to borrow to their maximum limit (known as "maximum gearing"), and then demanding transfer to the Consolidated Fund by way of "dividends". (Covered in my December 2015 blogpost, Solid Energy and LandCorp – debt and doom, courtesy of a "fiscally responsible" National Govt.)

This massive gearing by former SOE, Solid Energy, may have contributed to it’s collapse and demise on 13 August 2015.

This was the National Party of "fiscal prudence" and "sound economic manager".

Being the Party of "personal responsibility" did National take personal responsibility for implementing tax cuts we could ill-afford and which would demand massive borrowing?

No. They did not.

Note Bill English’s bizarre assertion that “Labour mismanaged the economy and did nothing to pay back debt”. The claim is risable and a shoddy attempt by National to escape responsibility for their economic incompetance. As most people recall, then-Finance Minister, Michael Cullen, posted one Budget surplus after another during his tenure.

Which puts Nicola Willis’ assertion that “we will not be borrowing for tax cuts - we will deliver tax reduction through more disciplined government spending” - clownishly ludicrous.

Living memory of recent events shows that "hermetically sealing" tax cuts is a political fiction. It is no more possible in real life than a household "hermetically sealing" credit card debt.

National’s fiscal magical thinking appears to be the shaky foundation for their alternative three waters policy.

In an enlightening story on Newsroom, political editor Jo Moir examined National’s policy (such as it is) interviewing current Leader, Chris Luxon.

True to form, Luxon’s comments were contradictory and in one instance, utterly incomprehensible.

When Moir asked Luxon if rates would rise under National’s policy to push responsibility for improving water infrastructure back onto local bodies, he replied:

“We don’t think rates will go up because of this at all because essentially, councils are going to make their own decisions about rates and what’s happening with the growth of their city and all that sort of stuff.”

Moments later, he admitted:

“The bottom line is we’re going to take those assets … put those assets into a council-controlled organisation, and go off and secure long-term debt funding for them that they pay off over 30 years consistently to make sure they’re invested in.
There could be water charges, user pays, there could be a whole bunch of different things that councils set up. Councils across New Zealand do it very differently at the moment.”

Luxon’s suggestion that Councils would “put those [water] assets into a council-controlled organisation, and go off and secure long-term debt funding” is questionable at best - and perhaps magical thinking at worst.

Many local bodies are already nearing, or at, their maximum borrowing limits, as Newsroom’s Jonathan Milne reported in December last year:

The cost of borrowing to pay for infrastructure is already putting council credit ratings under pressure: Wellington City Council has been placed on a negative outlook, and Marlborough District Council has been downgraded. When ratings go down, interest rates go up – which means increased liability for ratepayers. This will affect the four new water entities even more, because of their size.

Adding gibberish to contradiction, Luxon shared this example of word-spaghetti:

“We’re not in a world where we’re going to have the money that was supposed to be invested on pipes being spent on town halls and parks and other things, and therefore the money never gets to those water services.”

It should be crystal clear for most people - even fervent National Party supporters - that should a National-led government be formed in October, that we will be faced with;

tax cuts (benefitting high income earners the most)
more borrowing (to pay for tax cuts for high income earners)
and massive rates hikes, as National forces local bodies to borrow more for water services/infrastructure

There can be no other rational interpretation of their mish-mash of current policies.

The irony is that it will be middle class, property-owning, National voters who will bear the brunt of what essentially amounts to user-pays in funding water infrastructure. Remember Luxon’s tacit admission that “there could be water charges, user pays”. This is a clear forewarning our rates/water charges will sky-rocket.

Bearing in mind the political maxim that voters generally vote with their wallets. Their decision at the ballot box will be reflected in the Rates Demands which, after October this year, will land in their letter-boxes.

Will they be turkeys who voted for an early Christmas?

References

RNZ: Willis says tax cuts won't require borrowing - but cyclone will

National.org.nz: 2008 - Personal Tax

National.org.nz: Policy 2008 - Tax policy

Wikipedia: 2007–2008 financial crisis

CNN Business: This country hasn't suffered a recession in 24 years

OECD: Impact of the economic crisis on employment and unemployment in the OECD countries

Wikipedia: Great Recession

Stats NZ: The New Zealand labour market during recession

NZ Herald: Key - $30b deficit won't stop Nats tax cuts

NZ Herald: $250 million - What our Govt borrows a week