Critics of tax cuts always say they’ll be matched by spending cuts on the assumption that the tax take mirrors tax rates.
Obviously they’re related, and one affects the other, but they don’t necessarily move dollar for dollar nor in the same direction.
Ruth Richardson showed charts at a public meeting in Oamaru before the 1993 election which clearly demonstrated that while tax rates had fallen the tax take had risen. Among the reasons for that was a decrease in tax avoidance and an increase in productivity.
When Labour put up the top rate with its envy tax in 1999, among the immediate beneficiaries were lawyers and accountants as people hit by the new 39c rate on earnings over $60,000 sought to minimise their liability so the rate rise wasn’t met by a corresponding take rise.
National will announce its tax package on Wednesday and it’s sure to be met with accusations that every dollar gained by tax payers will be one lost from social services.
That won’t be the case because National has already made it clear its priority will be front line service delivery and that any savings will come from sorting out the bloated backrooms.
Unfortuantely there will be no miracles regardless of which party wins the election. But if it’s National, better economic management than the profligate spending of the past nine years should boost productivity and growth. That means more businesses and individuals making more which ought to generate a greater tax take from lower rates.