24 May 2005

ACT joins National for race into the red

“Act and National are competing against each other to drag New Zealand back into the borrow and hope politics of Muldoonism,” Finance Minister Michael Cullen said today of Act’s tax policy.

“Both parties would have to fund their tax policies from a mixture of spending cuts and borrowing and the bill would go to the New Zealand public.

“The highest earners might get out more than they put in, but those on low and middle incomes would end up worse off and New Zealand would be a far less safe and attractive place to live.

“Ordinary New Zealanders would pay through reduced education, health, law and order and other public services at one end and through higher mortgage and interest rate costs at the other.

“Make no mistake, the effect of tax cuts of the order Act and National are speaking would be highly inflationary and would require a response from the Reserve Bank,” Dr Cullen said.

He also dismissed Act’s spending caps proposal as “populist nonsense.”

“Both National and Act are misleading when they quote total Crown expenditure as this includes Air New Zealand, Kiwi Bank and all the Crown owned agencies. The relevant measure is core Crown spending which has in fact reduced as a proportion of GDP since 1999.”

Dr Cullen said the consequential costs of servicing the growing borrowing that would be required to finance Act’s tax cut programme would lead to at least a 50 per cent increase in government debt within five years without slashing expenditure.

“But already we see the first big cut. The New Zealand Superannuation Fund will go. This will have to mean big cuts to NZ Super sooner or later. And even without the Fund contributions, debt would spiral upwards,” Dr Cullen said.

ENDS

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