John MacDonald: How’s that $20-a-week tax cut looking now?

Kerre Woodham Mornings Podcast

How’s that miserly $20-a-week tax cut looking now that we know the country’s budget deficit is $1.8 billion worse than expected?

You might be one of the few people who are actually better-off by more than 20 bucks a week, but you’re in the minority.

And there’s no doubt that there is egg all over the Government’s face on this one. But I told you so. And it wasn’t just me who told you so, but I’ll get to that.

There will, no doubt, be people hitting back on this one —pointing out that ‘they’re not tax cuts, it’s tax “relief”— and that all the Government has done is shift the tax brackets.

But yeah yeah. Either way, same diff, most of us have an extra $20 in the pocket and the country has a $12.9 billion deficit —$1.8 billion worse than expected— the largest annual deficit since the pandemic in 2020.

Not quite as bad though as the deficits after the Global Financial Crisis in 2007 and 2008 and the Canterbury earthquakes in 2010 and 2011. The deficit blew-out to $18.4 after the quakes.

Not that that’s saying much because we’ve still got a $12.9 billion deficit and, yet the big brains in Wellington are still defending their tax cuts to the hilt.

Now, to be fair, the Government’s books show that while the deficit’s gone pear-shaped, the amount of money the government got in through the door was actually higher-than-expected in the past year.

But that doesn’t alter the fact that the deficit’s got worse and the Government has thrown caution to the wind and has voluntarily reduced its income.

Which I find weird for a government that says it’s bringing some business nous to the Beehive. Because in business —aside from containing costs— the number one thing when you’re in business is to try and increase revenue.

As soon as National started talking about tax cuts —or tax relief— before last year’s election, I could see then it was something the country couldn’t afford. And there was no shortage of experts lining up, saying the same.

There was the farcical idea of taxing foreign home buyers. But, even then, as soon as that idea was put to bed, National and its subsequent coalition partners still signed-up to the dream.

If I was being generous, I’d say that it was just politics. You know, it’s just the way it’s always been. Politicians promising to put more money in people's pockets. And, as people always have, they blindly swallow all the cheap talk without asking how it’s going to be paid for.

But I’m not feeling generous, and, anyway, that wasn’t the case. When all this tax cut talk started there was no shortage of people lining up to shoot it down. Even after the government was formed, the experts were still shooting it down.

Let me take you back to April this year when Gareth Kiernan from Infometrics wrote about it in the firm’s regular newsletter. Gareth is Informetrics’ chief forecaster, and he wrote back in April: "The Government’s plans to fully deliver its promised tax cuts must be in doubt, as the economy falters and the fiscal position continues to get squeezed."

He went on to say: “Forgoing another couple of billion dollars in revenue and increasing the deficit further might seem irresponsible. That conclusion becomes even more valid when one considers that National’s broader pre-election fiscal programme has led to change through the coalition negotiation process, with some estimates suggesting an additional shortfall in net revenue of about $1.5 billion.”

He was right then, and his view is even more spot-on now – now that we know that the deficit is $1.8 billion worse than expected.

The tax cuts were unaffordable and shouldn’t have happened, and the state of the Government’s books proves it.

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