As long ago as 2007, New Zealanders were telling pollsters that while they wanted tax cuts, a majority of the public opposed tax cuts if the funding for them required cuts to social services. Seventeen years later, we’re still in the same boat. Almost on a daily basis, more evidence is emerging of the public services being scrapped or deferred to fund the government’s tax cuts election bribe, and its $2.9 billion tax handout to landlords.

Earlier this week, the disabled community found out via a Facebook post that they are to be the latest victims of cost cutting. For all the government’s talk about being tough on crime, the Police are facing cuts to frontline services. School lunch programmes are facing up to 50% cuts to the services they provide to hungry children, while school repairs and classroom replacements are being deferred. Second hand rail ferries are being bought for the country’s most vital trade and tourism link.

But wait, there’s more. At a time when New Zealand is struggling to innovate and compete on world markets and retain its best scientists, the coalition government is cutting half a billion dollars from science funding. The buildings and labs at Callaghan Innovation, one of the country’s leading research facilities have been allowed to fall into disrepair. Rather than do the “blue skies” research that leads to breakthroughs, scientists are being told to monetise their work by putting it at the service of business. The tax cut will also increase social inequality. (The bulk of the revenue will accrue to those least in need.)

We are burning all these bridges in order to enable tax cuts that will have no discernible long term benefit to the country. So far, relatively little attention has been paid to how the tax cuts will impact on the economy –– and whether putting more spending money into circulation will undo some of the efforts that the Reserve Bank has been making to reduce inflation.

The Return of the Tax Cuts Zombie

For the past 40 years, centre-right governments around the world have peddled the myth that tax cuts and de-regulation will unleash entrepreneurial forces that will create so much economic growth, productive investment and innovation that the tax cuts will virtually pay for themselves.

This has never happened, anywhere. Yet the tax cuts = economic growth equation shambles on, like the walking dead. Bloomberg News recently reported on the research findings from a well publicised sighting of the tax cuts zombie – namely, the US Tax Cuts and Jobs Act of 2017, that had been heavily promoted by then-President Donald Trump.

Its authors sold it as a fiscal miracle drug: It would simplify taxes, make businesses more competitive, increase wages, create better jobs, boost economic growth and raise revenue. Now the evidence is in, and the TCJA looks set to be remembered as an outstanding fiscal disaster. By 2027, it will have cost almost $2 trillion, while failing to deliver the promised benefits.

As Bloomberg noted, economists typically expect a tax cut to have the greatest impact in its first year. Not this time:

In 2019, the Congressional Research Service, charged with briefing Congress on its own policies, concluded that the TCJA didn’t increase wages and had little to no effect on economic growth. Researchers at the International Monetary Fund reached a similar conclusion about private investment. Companies themselves reported they didn’t use the tax cut to invest, hire or give raises... Similar initiatives in 2001 and 2003 didn’t strengthen the economy or pay for themselves, either. Instead, they primarily benefited the wealthiest households, while sharply increasing federal deficits and debt.

Now it may be that Nicola Willis is able to do the trick that has eluded every other centre-right finance minister in the world for the past 40 years. In the meantime, perhaps she should be being asked if her government’s tax cuts package will (a) create economic growth and (b) spur productive investment and if so how, and in what sectors (c) lift productivity (d) foster innovation and (e) lift wages. Because if it will do none of those things, the tax cuts will have been yet another fiscal disaster with a major opportunity cost – i.e. there were so many other socially and economically beneficial things that this revenue could have been better spent on.

Sugar, sugar

What the tax cuts will do is provide a sugar hit to the economy. They will increase the ability of individuals and households to spend, and this will bring welcome relief to retail and hospitality sectors currently doing it tough. This extra money floating around will also encourage them to raise their prices. (For the same reason – people having a bit more money at their disposal - the tax cuts will put upwards pressure on rents.)

But here’s the thing. The tax cuts will give a boost to household spending, and to some households more than others. (If you’re earning $44,000 and have no children, you stand to get only $4 extra a week.) Yet for the past 18 months, the Reserve Bank has been blaming household spending for enduring inflation and the cost of living crisis, and so it has systematically raised interest rates to reduce household disposable income, and to throw people out of work.

Luxon and Co routinely blame the Labour government for the current economic slowdown – while ignoring the fact that these deteriorating economic conditions have been the deliberate goal and direct result of the RB’s monetary policy/interest rate settings, which the Luxon government says it supports.

The tax cuts though, will risk re-igniting the inflation we have struggled so painfully hard to contain over the past 18 months. At the very least, the retail up-tick will slow down the pace at which the RB will be willing to deliver cuts to interest rates.

The only way the tax cuts will NOT fuel inflation will be if the cuts to government spending (and to social services) have been so draconian that the public – and the economy – will be left no better off.

Arguably, we might have been better off borrowing the money to finance the tax cuts, rather than watch the Beehive’s tenants trash the social furniture in order to make them happen. Somebody call Kainga Ora to evict these people!

Footnote: The Key government financed its socially regressive tax cuts by selling down the public’s shares in well-performing state assets. The more things change, the more they stay the same.

Losing Rod Oram

Like everyone else who has mourned the loss of Rod Oram this week, I found him to be kind, generous with his time and talent, and always supportive. A gifted communicator across the political divides, he was also the first mainstream journalist to put climate change front and centre of his work.

Last week, in a few short minutes in what was almost his final contribution, Oram re-thought his stance on the Ruataniwha dam project, lamented the likelihood that the project will be given fast track treatment in Parliament, praised the Wellington City Council for advocating for more intensive housing, and noted with interest Housing Minister Chris Bishop’s support for the Council decision. Just an ordinary day’s work.

From the Denver Academy in Colorado… I liked this relatively recent short profile of Oram (Class of ‘70) that, among other things, depicted him as an 18 year old in Denver already blessed with the curiosity and the environmental passions (The mountains! That big Colorado sky!) that was to serve him (and us) so well throughout his life.

In the NZ Herald this week, there was a heartfelt profile with a touching comments thread. Very apt, and a bit ironic. In AUT’s Pacific Journalism Review #3, 2002, Bill Rosenberg had cited the Independent newspaper findings (also quoted in Parliament in May 2000) that Oram had been put under pressure by the Herald to leave, because boardroom hardliners didn’t like him, mainly because they believed him to be too “soft” on the industrial relations policy of the then-new Labour/Alliance government. At the time, the Herald denied the allegations, but Oram did resign a month after the allegations surfaced.

In other words, not even Oram’s manifest talents and scrupulous fairness could always protect him from the bigotry of the media barons of the day. He went on, undaunted. In celebrating his life and career, we should be additionally grateful that he had the courage to ensure that his voice was not silenced.

Music playlist

Most of the choices on this playlist are self evident. I’ve featured the Iron & Wine/Fiona Apple duet “All in Good Time” before, but include it here again because (a) it is insightful about how people adjust and endure in long term relationships and (b) because Matthhw Perpetua has written about the track so well on his Fluxblog site:

“All In Good Time” is a new song that’s so warm, familiar, and lived-in that it feels like it has existed for decades. Some of that is stylistic – you could send this back to the 70s and I doubt anyone would think it sounds like the future. But it’s mostly in Fiona Apple’s weathered voice, which invests Sam Beam’s lyrics with the accrued regret and exasperation of decades of getting burned by her own fiery passions. I like the way their voices contrast, her grit and gruffness set in sharp relief by his gentle, steady tenor. They’re singing a story about a relationship through time, and they make it sound like two opposites who’ve attracted each other and have spent ages trying to figure out how that makes sense.

Other notes: M. L. Buch is a Danish composer/artist, and her recent album Suntub is worth checking out. Dan Boeckner used to be in Wolf Parade and in the Handsome Furs and his song offers some striking lyrical snapshots glimpsed from a speeding car. The Mannequin Pussy and Sleater-Kinney tracks feature two bands blessed with much the same impulses. Plus, it's great to have new material from one of Scotland’s finest ever bands Camera Obscura, and to hear Traceyanne Campbell’s voice again.

Here’s the playlist.

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