Monday, July 11, 2005

Something to go to in Wellington

Brian Easton on the tax debate and the cost of cutting taxes, St Andrews on the Terrace, Tuesday July 12th, 12:15 - 13:00. Further details here.


Interesting lecture. Included:
GDP increase in last 6 years = 13.6%
Govt spending increase in same period = 14.4%
Provate spending increase in same period = 17.9%
net result.. yes there's been an increase in income and it's all been spent (and more). Any tax reduction is going to have to be funded from equivalent reduction in expenditure.
He then went through possible candidates for expenditure reduction and concluded (as David Slack's site demonstrates nicely) that there's no simple place for savings. His nice metaphor was it's not fat on the outside of the corned beef, but fat marbled into the rump steak. ie you can cut it out, but along goes plenty of meat with it.
The OBERAC surplus quoted by the tax-cut brigade is a simple misunderstanding of economic principles (accidental or deliberate).
My addition: Nevertheless it's a perception that has taken root in public consciousness, so the left will need to dispel it.
Cheers for the heads-up I/S.

Posted by Anonymous : 7/12/2005 02:09:00 PM

The text of Brian Easton's talk is on his website at

Key points I've taken away from the talk (not necessarily the ones intended):

- Is it really the case that there's no surplus to spend because it's been used/allocated already? (OBERAC, state investment, etc) Has anyone done a summary of, wait for it, key concepts in government accounting for non-dummies who can't usually be bothered but suspect they're going to have to do a crash course in order to cast informed votes this time around?

- The top finance people in National are known for fiscal prudence, just as Cullen is known for fiscal prudence. While I could understand that the Nats would like to get as much mileage and moodswing as they can out of the possibility of a tax bribe, they're not dumb enough to think they can actually give anything substantial without breaking things. The question, then, becomes whether they're prepared to break some things -- maybe long-term things that won't come home to roost for a while -- in order to get political power now, and especially to buy support from NZ First.

- An interesting comment that in the 1990 and 1984 elections, what a party said while in Opposition was not a good guide to what they delivered in office, but that "the 1999 Labour led government has kept much more strictly to its pre-election promises. I would expect a 2005 National-led government to do so too. It is not that today’s politicians are any more honest. MMP enables them to be honest." Isn't there a crucial difference between issue-by-issue support -- which does indeed let all parties stay honest -- and "we'll buy each other's support in order to make up the numbers for an old-style majority block-voting govt", which doesn't?

The presentation wasn't quite as fluent as I would have liked, but was interesting. Very grey front half of the hall, but we latecomers tended to be yonger.

Posted by Anonymous : 7/12/2005 02:22:00 PM

Bloodthorn: In answer to your questions:

1) Yes. David Slack has the details on how the OBERAC surplus is being spent and what blowing it on tax cuts would mean here.

2) There's a basic point of difference between the major parties on public vs private provision, and National might be quite happy to offload functions which are presently performed by the state onto the market in order to fund its tax cuts. An example of this would be tighter targetting in health, essentially requiring people to buy private health insurance. Given their attitudes towards beneficiaries, they may also not regard service cuts which impact mainly on the poor as "breaking things" (they certainly didn't in the early 90's).

3) There may very well be a difference between the honesty of coalition and minority governments - and we may very well find that out after the election.

Easton's lecture is also up on Scoop.

Posted by Idiot/Savant : 7/12/2005 05:06:00 PM