15 April 2002
“Stampeded by bad polls into bad policy,” said Finance Minister Michael Cullen today of the National Party’s tax cuts announcement.
He was commenting on National’s plans to cut seven cents off the top personal tax rate and five cents off the corporate rate over a four year period. National’s own figures put the final cost at $1.665 billion a year.
“That, combined with all the other promises National keeps making, amounts to an extremely loose fiscal stance which will inevitably flow through to higher interest rates.
“National is obviously desperate to shore up its sagging support but is choosing to do this through policies which will benefit the few at the expense of the many. There is nothing in this tax package for anyone earning less than $60,000 until the fourth year when those on $38,000 plus would get a miserable 1 cent reduction.
“And for the hundreds and thousands of New Zealanders on less than $38,000 there is nothing at all.
“That is not fair and, because it is not fair, it is not good politics,” Dr Cullen said.
He said that Bill English clearly inhabited an elastic world in which he could spend the same dollar several times over and in which he could occupy several different positions on every issue at the same time.
“He says he will fund his tax cuts out of the money he would save by dismantling the New Zealand Superannuation Fund. Yet he has repeatedly accused us of funding the Fund from borrowings.
“Does that mean that he intends to plunge the country into deficit to line the pockets of his rich mates? Or does it mean that he was raising dishonest arguments to justify National’s failure to put New Zealand Superannuation on to a sustainable basis by supporting the fund.
“He also says his tax cuts will stimulate growth but he has in the past been sceptical of any such connection.
“He told National Radio in the run-up to the 1999 elections: “Anything I’ve read around tax rates and economic growth, it can be a bit hard to tell whether it’s looking back you can see a correlation between economic growth and significantly lower tax rate[s], or whether looking forward…lower tax rates cause economic growth..Smaller reductions in the tax rate may have some economic impact but not significant.”
“The facts support his scepticism. New Zealand had tax cuts in 1986, 1988, 1996 and 1998. The growth track shows that, on each occasion, they were spectacularly unsuccessful in lifting the growth rate on a sustainable – or even an immediate – basis.
“But even more serious, particularly in terms of the future, is Mr English’s idea that the surpluses we are running now are all available for spending.
“Sound fiscal management demands that we save a substantial proportion of the surpluses that are generated when the economy is growing strongly and when the pressures created by the ageing population have yet to emerge,” Dr Cullen said.