19 Sep 2020

National's tax cuts: Too much and not enough - critics

12:01 pm on 19 September 2020

National's promised tax cuts to help reduce economic damage from Covid-19 have critics divided over whether they don't go far enough, or promise too much at a time we should pinch pennies.

New Zealand dollars

Photo: 123RF

The National Party has announced a short-term package of tax cuts worth about $4.7 billion, to be paid from $14 billion remaining in the Covid-19 response fund, if they are elected.

But veteran economist Cameron Bagrie says while stimulus is the right thing to do now to pull the markets through tough times, tight purse strings will be needed when the economy begins to recover. So the next government will need to be prepared to implement strong spending restraints.

He says National and Labour are focused on providing short-term stimulus for the economy, but each is proposing different methods to do it. And while a stimulus is the right thing to do, it comes with a caveat.

"If you're prepared to go big to support the economy during the tough times, you've got to be very disciplined and be prepared to rein it in during the good times, and that means strong spending restraint - so you need that balance."

Once recovery is underway more spending would be harmful, he says.

Cameron Bagrie - ANZ Chief Economist

Economist Cameron Bagrie Photo: RNZ / Alexander Robertson

Labour has criticised the strategy as reckless, and warned National would have to cut services in health and education.

But Auckland Chamber of Commerce head Michael Barnett believes National's tax policy needs to go further if it is to provide enough short-term stimulus.

Michael Barnett, CEO of the Auckland Chamber of Commerce.

Michael Barnett, CEO of the Auckland Chamber of Commerce Photo: RNZ Pacific/Christine Rovoi

He doesn't think health services or education would have to be cut, but says the policy is not enough and is calling for bigger tax cuts.

"I don't see it as bold, and I think what we're going to need is something bold, so the cuts could have been bigger.

"Because if there's a likelihood of a spend, it doesn't really matter where the spend comes from, we need to stimulate the economy right now."

He says the most important thing is to keep the economy afloat, and to steady the ship once it recovers headway.

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