What does the Pre-Election Fiscal Update tell us? Here's a few thoughts:
- Firstly, Labour's tax cuts weren't really affordable. They were an irresponsible election-year bribe which mortgaged our future to pander to the selfishness of those on upper income brackets. Comparing the debt figures with those from the BEFU, it's telling that the difference in gross sovereign issued debt - the amount the government has had to borrow - is $13.1 billion, just $1.6 billion more than the cost of those tax cuts. If Labour hadn't cut taxes, we wouldn't be in this mess. We'd still be running deficits, but they would be small and very manageable.
- Secondly, it means that we certainly can't afford to cut taxes any further, as National is promising to do.
- Thirdly, there is absolutely no money lying around for big election year policies. The cupboard is bare. We should scale back expectations accordingly. If parties want big, headline grabbing policy, they'll actually have to think rather than just spend. This may be beyond them.
- Fourthly, isn't the government's policy of free allocation for the ETS looking a bit stupid now? If we'd auctioned, we'd be a lot better off financially.
- Fifthly, this is exactly the sort of economic crisis National needs to justify a radical policy shift - John Key's "BNZ moment". All those promises that they will continue the status quo and not restart the Revolution by pursuing slash and burn tactics for the benefit of their rich mates? Absolutely worthless. Fortunately, MMP should provide a check, provided National doesn't have easy coalition options.
- Finally, whoever is delivering the budget next year will be having to make some painful cuts to government spending to try and balance the books. National will play up the risk of Labour cancelling the second and third rounds of their tax cuts; Labour the risk that National would cut benefits, underfund health and education, or start selling assets. So, the election really is about trust - who you trust not to screw you over in bad economic times.
