Tax cut proposals a dead end
June 26, 2005
Tax cut proposals under present funding mechanism are a dead end for the taxpayer according to Advance New Zealand.
Never in the history of our country have any incumbent party introduced long term cuts in tax levels without corresponding cuts in public services or increases in debt. The reality post the 2005 election will be no different for the very simple reason that orthodox economics dictate a tax cut without spending cuts or an increase in debt will lead directly to higher interest rates and thus an increase in cost inflation
The solution is also very simple - so simple that politicians can't get their heads around it. To make long term reductions in taxation a government must reduce the level of interest bearing debt in the economy, debt which can only be serviced by extracting hard earned money directly or indirectly from the taxpayer.
Public-good infrastructure providing essential services such as education, health, defence, policing, energy, justice, transport, clean air and water etc can and must be funded free of interest. As the current interest bearing debt mechanism is a primary driver of inflation, its gradual replacement will extract basic inflationary expectations from the economy.
The traditional debt based funding system, whereby infrastructural services are paid for over and over by successive generations of taxpayers, could then be consigned to the rubbish bin of history in favour of a mechanism which reflects the reality of 2005 rather than flawed economic myths inherited from the 17th Century.