A self-satisfied Michael Cullen will present his third Budget on May 23. He has some reason to feel tad elated: he has won major argument.
Bill English has fallen into line on what is “prudent” debt. His fiscal policy, like Cullen’s, is now predicated on net debt of around today’s level, about 20 percent of GDP. That ends the 1990s’ Bill Birch drive to shrink government debt.
There is difference, of course, big one. Cullen is, in theory, salting away funds to meet the baby-boomers’ drain on pension funds after 2020. English proposes to abolish the fund.
The Cullen plan, in theory, allows pensions to be maintained without raising taxes or debt or cutting spending. English’s legacy for the ageing baby-boomers, will, in theory, be higher debt or higher taxes or spending cuts. His counter proposal – introduced in term or two when public opinion has changed – is system of individualised accounts, part state-funded, which could customise health and upskilling, and fund old age.
Meantime, English argues, lower taxes now will grow the economy faster making us all better-off and therefore funded to look after ourselves.
Cullen is committed not to raise personal, corporate and GST taxes, though has left himself free to raise excise and environmental taxes. English is committed to lowering personal tax (by amputating Cullen’s top-end 6c) and corporate tax (to 30c) in future National government’s first term, with more cuts in second term.
At the same time English insists he can maintain health and other social spending because abolishing the super fund allows him to run lower Budget surpluses than Cullen, who needs nearly $2 billion year extra surplus to cover the fund.
Cullen asks: “What will you cut, Bill?” To which English responds: “Nothing.” To which Cullen can riposte: “You are cutting future super. Tell that to the 50-somethings.” And so the circular argument will go.
There is deeper political argument that has to do with timescales.
Cullen can point in his favour to the Dutch and the British. The Dutch have confounded orthodox economics with high growth, low inflation, low unemployment – and high taxes.
Last election Britain’s Tories were scared off tax-cutting because it ran into “what services will you cut” return-fire. Now the Blair Labour government (which in its first term surreptitiously lifted the tax take even while cutting rates) is expected to raise tax in its 2002 Budget.
What lesson can be drawn from that? Some British commentators reckon tax cuts have had their day. If the commentators are right – and, indeed, the 39c tax rate here doesn’t seem to be big or even sleeping, electoral issue this year – English is on spongy ground.
He can, however, point to two differences.
One is immediate: the state of services is different. In Britain the decrepit, now privatised railway system lowers the quality of life; the nationalised National Health Service is widely agreed to be disgrace. While there is disquiet about our health services, the disquiet is not as intense as in Britain. Railway services are not Kiwi household issue. Few of us travel on them. So Cullen’s comparison with Blair’s Britain may not stand much scrutiny.
English’s second difference is longer term. He thinks that under-45s think differently. They have spent all or most of their adult life under Rogernomics and therefore, don’t have the over-45s’ benign view of the state.
English represents the under-45s. He is, after all, one of them. Cullen represents the over-45s, in every way.
If English is right, the generation gap is on his side. He is the future: Cullen is the past. In due course in politics, as in life, the future wins.
But not yet. Tax cuts might win some votes this year but on present indications, not enough to give English the opportunity to put them into effect. If Cullen can successfully scare voters into imagining health and education cuts, tax cut promises might boomerang in middle New Zealand.
There is, however, short-term method in the English tax cuts madness. Coming off 30 percent of the vote in 1999 and low polling since, English does not have the luxury of shopping for converts from Labour. He has to shore up his core vote – particularly the vote of small business people, whom ACT is targeting. Tax cuts should appeal to them.
Colin James is Management’s regular political writer.
Email: [email protected]
