Thursday, June 30, 2011

Treasury on an earthquake levy

Treasury has released a pile of Budget-related papers, including one on temporary taxes as a way of paying for the Christchurch earthquakes [PDF]. They considered four options: a payroll levy, increased GST, a surtax on income tax, and higher rates, and ultimately discarded them all. Why? In short, because Treasury has an ideological hatred of hypothecated taxes. Instead they recommended that

the appropriate fiscal response is to borrow to fund the shock and permanently raise taxes by a little to fund the now-higher expected costs.
National, of course, only did half of this, borrowing to fund the shock and refusing to raise taxes, because that would be rolling back a core commitment to their rich mates. So, instead, we seem to be funding the earthquake from cuts to core public services – effectively responding to one disaster with another. Thanks, National!