Wednesday, September 14, 2005



The cost of borrowing for tax cuts

National's economic plans include hiking government borrowing by around $3.5 billion to cover the revenue shortfall caused by their tax cuts for the rich. I'd initially estimated the cost of this borrowing at around $150 million (or around 10,000 hip operations, to use the right's favourite currency) per year. But it seems it will be more than that. Figures released today by Michael Cullen show the cumulative cost of servicing this borrowing as more than a billion dollars a year after five years. To give some idea of scale, that's about the amount we presently spend on the police ($1,002 million according to the Budget 2005 summary tables). I think this speaks for itself as to the insanity of National's plans.

8 comments:

I actually worry about it in a different way - I feel that politician, and through them the public fall for one of the oldest self-deceptions - remember Aesop's fable of the ant and the grasshopper - the industrious ant works through the glorious summer while the grasshopper fiddles away the nice days - come the winter the ant's sitting pretty and the grasshopper dies (Aesop told it much better than I just did - but you get the idea).

Well running a modern govt's a bit like that in the bad part of the economic cycle it's OK to borrow money so you don't have to raise taxes (it's just the wrong time and makes the bad worse), but conversely in the good years you PAY WHAT YOU BORROWED BACK otherwise the next time the cycle dips you're in bigger crap than you were.

When things are good it's easy to spend up, offer tax cuts (you wont be able to sustain when the economy turns south and you still have to pay off the interest) when you should be doing something boring like paying off the debt - on the other hand it's easy to party like the grasshopper, after all summer will last forever wont it.

Recently I moved back to NZ after years away and was really impressed that Cullen was doing the ant-thing (honestly he doesn't articulate it well) - but Brash, well of all people he should understand the economy, debt, stability - honestly he's seen the 'elect me no matter what' light - at least Labour's remembered its history - I predict a Nordmeyer moment if Brash is elected ....

I earn a relatively lot of money - I stand to make the entire National $5000 bribe in my pocket - but honestly my taxes are already lower - I moved back from California where taxes are rather higher than here - if the politicians want to do something to help people like me they should do something about the thing that most effects my income

But then if National gets in and starts borrowing big interest rates may go up and I'll be much worse off - that graph only has to go down by 3c for me to lose more than the $5k/year that Brash is offering - I suspect I'm screwed

PaulC

Posted by Anonymous : 9/14/2005 03:38:00 PM

Our govt already pays almosttwice the interest level that the US govt does on our debt. And if we go further into debt, our govts interest rates will rise.

National's fiscal policy is oddly reminiscent of the 70s, with Muldoon insisting that our levels of debt weren't a big deal because they were paying for "capital investments". But then once you're in debt your money's going on interest payments and it's hard to get out...

Posted by Icehawk : 9/14/2005 04:19:00 PM

not just the govt's interest rates - if they go up our mortgage interest rates will go up, and also as a result more people overseas will want to invest here ... the NZ dollar will go up .... which will crap on our exporters more (did I mention I will be screwed, I export my labour and get paid in US$) ... what will increase will be our export of the interest paid on our debts ... not a sustainable economic regime

PaulC

Posted by Anonymous : 9/14/2005 04:29:00 PM

BTW:

Our govt's interest rates on its debt and the interest rate the reserve bank sets aren't quite the same.

The reserve bank controls the shortest-term interest rate that there is: the overnight rate. It can try to raise long-term interest rates, by pushing that rate up: think of it as holding one end of a fairly slack string.

But the market sets the rest of the interest rate curve (think of that as the string). 2 year rates, 5 year rates, etc - the govt doesn't set them, it gets told them.

Posted by Icehawk : 9/14/2005 04:43:00 PM

I agree with PaulC about the ant thing (and I am obviously not a partisan)
I wish more people were sensible enough to see it that way.
I agree labour doesnt articulate it well and may be only in part commited to it.

Posted by Genius : 9/14/2005 07:05:00 PM

Which part of Don's quote. "There will be no borrowing for tax cuts" don't you understand?
Which part of "not one less nurse, nor one less doctor nor one less teacher don't you understand."
Are the loony left so used to Labours constant lies and spin that they cannot recognise honesty and integrity in a politician. No serious political commentator questions Don Brash's integrity or honesty. Pedantic accuracy may cause confusion but at all times he has been scrupulously honest.
Honesty, integrity and leadership truly is the issue that separates Labour from National. Helen was absolutely right. That is and should be the theme of this election. That is why Labour deserves to lose the unloseable election.
e.g.
"Treasury have not costed the student loans policy. LIE
It will only cost $100m in the first year. LIE
It will only cost $300M in total LIE

FACT
Labour interest free student loans policy will need more borrowing than National's staged borrowing for infrastructure developments (TRUE)
Labours plan will massively increase student debt (TRUE)
Every worker ineligible for WFF will pay for Labour's 1,000m student loan bribe. TRUE
Graduates will be overtaxed by Labour(TRUE)
Non Graduates will be overtaxed by Labour. (True)
Sept 18th sees the arrival of honesty and integrity.
Adieu.

Posted by PatMC : 9/14/2005 11:52:00 PM

patmc: "Which part of Don's quote. "There will be no borrowing for tax cuts" don't you understand?"

Umm, I think I heard Don Brash say on TV tonight tht he WOULD have to brrow to finance tax cuts for the rich.

Get real, people are pragmatic and vote for their own circumstance. As a father of 4 with mortgage and all the usual drains on my (meagre nowadays) pay packet, I will ote for the partys that will give m FAMILY the best deal.

Your slavish belief of all the National rhetoric, already exposed (actual cost of tax cuts - $1.4 billion) does justice to a Bush supporter. Go troll somewhere else.

Posted by Anonymous : 9/15/2005 09:21:00 PM

With all the commentators predicting an economic turn-down Brash proposes reducing income tax, at exactly the same time company tax and GST is likely to reduce.

My prediction is that by the next budget the so called "surplus" will have vanished and no-one will be talking tax cuts anymore.

Posted by Logix : 9/16/2005 07:05:00 AM