Bill English admitted a couple of very interesting things at last Wednesday’s Finance & Expenditure select committee meeting re the $14b worth of tax cuts.
You know, the tax cuts that gave the wealthy substantial coin back ($1m = $1,000/wk extra in the hand), but those on the median wage minimal; and certainly not enough to cover the cost of increases bought on by rises in GST, petrol etc. Those admissions were:
- ‘That the tax cuts aren’t stimulatory’. Hold on a second: what was that Bill?? We are in the middle of a recession, and the govt spends around $14b on a measure that isn’t stimulatory! Help me out here, because I don’t understand this one. If this ‘switch’ was just about ‘rebalancing’ and not about economic stimulation and recession busting, then why not at least wait until the economy is firing again, and in the meantime, spend some of the $14b on getting the economy up and running!!!
- ‘That New Zealand is the only country in the world undertaking tax cuts like these’. Yep. Wonder why? Perhaps because trickle down / supply side economic theory that these tax cuts are based on (and confirmed by Treasury Sec Whitehead) died with the dawning of the 21st C. Perhaps because such theories have been disproven. Perhaps because Bill English really is mismanaging the economy in the most expensive, worst, diabolical possible way. Perhaps all of the above…!
- That he didn’t think people would start saving and paying down debt so soon’. Groan. There are about 1,000 books on JM Keynes, his theories, his philosophies, his thoughts, the implementation of his theories, philosophies and thoughts etc etc. Know what – they all say that during a recession a govt shouldn’t give tax cuts to the wealthy because… the wealthy save and retire debt and it does nothing to stimulate the economy. Just like has happened. It’s not rocket science. It’s always been out there – and it appears that every finance minister / treasurer in the western world read at least one or two of these books on Keynes; well, all except one Bill English.
Damn!!
Is there anything else to add? You’ve outlined the points very succinctly. I know that Keynes was persona non grata to the Freidmanites but you’d think that English would have picked up on the trends over the last couple of year on the need to return to a more Keynesian approach. Ideology over substance once again.
Wonder what Bill would say about the Warner bailout or for that matter the change to employment law that Brownlie said was not sought by Warners?
It’s just wrong to say that every Keynesian thinks that tax cuts are a bad way to stimulate the economy – try Greg Mankiw, a hugely prominent neo-Keynesian. Even Christy Romer, who is an advisor to Barack Obama, has published papers arguing that there is a high multiplier from tax cuts.
I would also observe that Treasury thinks the tax cuts will add about half a percentage point to GDP.
Passing the legislative buck!
This makes for depressing reading. What is English thinking? He knows better than this. He knows we are in an era of debt and personal deleveraging. Instead of giving that money back to the wealthy to invest in property or overseas shares (neither of which provide economic stimulus) the Government could have spent that money to create jobs, lift benefits, pay teachers etc. which IS stimulatory at the retail and service sector level.
Damn it why are these NATs determined to do the wrong things when they should full well know better.
Im pretty sure Bill English is still trying to figure out where he lives.
“‘That the tax cuts aren’t stimulatory’”
As well all know what English was meeting the demands of national ‘backers’.
Worse thing is the some of the more wealth members in this country also saddle a fair bet of debt! (Disillusion of wealth) So they will be using these tax cuts to pay off over seas debt.
Like CV said, most of the rich aren’t interested in starting up a factory or do something productive, that’s just to hard, it much easier to speculate!
Anyway, that cycle track will get us out of the recession.
For the Freidmanites, they are just cultist with their sheep bleats! They don’t actually try to figure out HOW the ECONOMY actually works. Instead they just say a simple but hollow cliche like ‘Markets are always self-regulating’ or ‘Markets always work and only markets work’
Never-mind reality is painting a much different picture.
It just to hard trying to figure out the nuts and blots of the economy and get a real idea on how money works.
@Stuart Nash
Have you always been a follower of Keynesian?
After he wrote this article, Sowell offered a monetary prize for anyone who could find an economist who had written a trickle down theory… Funnily no one has ever claimed…
There are. However, orthodox keynesianism failed empirically long ago as their macroeconomic predictions were wrong. Now we have neo-keynesians and post-keynesians. So it is no longer simply his theories and his thoughts etc. They had to be modified because of fundamental problems with Lord Keynes own work and the failure of those policies when implemented (stagflation).
I’d also point out Keynes strongly advised against any government running deficits of greater than 4% of GDP even during recessions, we are currently at about 6% so English is following a Keynesian policy and exceeding it by about 50%… Much to my chagrin…
If you are advocating increasing this maybe you should read your Keynes…
always been a follower of Keynesian economic theory / philosophy. Yes, there are post Keynesians etc, however the fundamental principles and philosophies remain the same.