Borrowing for tax-cuts

Today's piece in the Herald on National's tax plans finally made it clear how they are planning to pay for their tax cuts: they're going to borrow:

[John Key] was confident a review of spending across departments would throw up enough waste and duplication to help fund cuts. The other ways the cuts would be funded are:* A lower oberac surplus (operating balance before revaluations and accounting changes) than Labour's.* Borrowing more to finance some capital items like roads and possibly student loans.

Just to make this clear, the OBERAC (operating balance excluding revaluation and accounting changes) effectively tracks the level of investment in our society. Currently most of that "surplus" is being spent on things like schools and hospitals and roads, or stashed away in the Cullen fund so we can pay for people's pensions in the future. "A lower OBERAC surplus" means not doing some or all of this. It means running down our infrastructure. Given National's stated commitment to roads, this means that it will most likely be our schools and hospitals which will bear the cost - schools and hospitals which still have not recovered from a similar run-down under National in the 90's.

As for outright borrowing, the fiscal irresponsibility of this is simply breathtaking. We've spent the last twenty years clawing our way up from the effects of Muldoon's borrowing binge. We've spent the last six recovering from the effects of the policies intended to end it. As Brian Easton pointed out last week, it is extremely difficult to get off this wagon once you have got on it (see that twenty-year process above). The compounding cost of debt servicing can very quickly cause a blowout, especially if the economy goes sour - as it is expected to next year.

Then there are the equity issues of who pays. Borrowing creates a burden on future generations (as does running down infrastructure). This is one thing when they receive a valuable asset in return. But what National is proposing is borrowing to fund consumption, the equivalent of maxing out the credit card to pay for a self-indulgent shopping spree. There will be nothing to show for it, and the next generation of New Zealanders will be left to pick up the tab and clean up the mess. Meanwhile, the people who will benefit - the rich - will be laughing all the way to the bank...

This is not the plan of responsible economic managers. Instead, its the "spend today, pay later" promise of a party desperate to get elected no matter what the cost. It is irresponsible and unsustainable, and we should reject it.