Politics 🗳️ NZ Politics

[Damo]

Describing a tax cut as being funded by borrowings is incorrect. I would have expected Bernard Hickey to understand the distinction, but obviously not! Just goes to show that people publishing things online aren't necessarily fact-based

Tax is the Crown's revenue. It's why the IRD is the Inland Revenue Department. When a government makes a "tax cut", they change the rules and reduce the Crown's revenue.

It's like operating a shop and making fewer sales. A shopowner doesn't then borrow to make up for lower sales. They borrow to pay expenses (if they keep spending at the same level).

It's impossible to borrow to fund reduced revenue. You only borrow if you need to pay for something. Like the Crown borrowing to enable it to spend.

Characterising "funding a tax cut with borrowings" is impossible and incorrect. Citizens earn their income. If the Crown decides to allow them to retain more of it (i.e. a tax cut), it is a loss of revenue. If the Crown wishes to then keep spending, then it borrows to keep spending levels the same

If the tax cut didn't happen would the new borrowing have happened?

 

[MrFrankWhite]

If the tax cut didn't happen would the new borrowing have happened?

Depends if the govt insists on spending more than its revenue doesnt it?

 

[defensivebomb]

If the tax cut didn't happen would the new borrowing have happened?

It all starts and ends with government spending. That’s the driver for tax and borrowing decisions, not the other way around

 

[wizard of Tauranga]

Describing a tax cut as being funded by borrowings is incorrect. I would have expected Bernard Hickey to understand the distinction, but obviously not! Just goes to show that people publishing things online aren't necessarily fact-based

Tax is the Crown's revenue. It's why the IRD is the Inland Revenue Department. When a government makes a "tax cut", they change the rules and reduce the Crown's revenue.

It's like operating a shop and making fewer sales. A shopowner doesn't then borrow to make up for lower sales. They borrow to pay expenses (if they keep spending at the same level).

It's impossible to borrow to fund reduced revenue. You only borrow if you need to pay for something. Like the Crown borrowing to enable it to spend.

Characterising "funding a tax cut with borrowings" is impossible and incorrect. Citizens earn their income. If the Crown decides to allow them to retain more of it (i.e. a tax cut), it is a loss of revenue. If the Crown wishes to then keep spending, then it borrows to keep spending levels the same

Well put.

The dollars confuses things.

To put it in simpler terms, when people work in productive industries they allocate a percentage of their labour to the government via tax. The government uses the taxpayers labour to pay for government services converting it to govt employees labour via money.

A tax cut is simply taking less of the labour from taxpayers. The government doesn’t have as much productive peoples labour to invest in govt services.

When you think of it as labour then it opens up a whole lot of ideas around where’s the labours best utilised? Who decides? How productive can we make that labour? What’s the opportunity cost of extracting to much labour from the private sector?

 

[Damo]

It all starts and ends with government spending. That’s the driver for tax and borrowing decisions, not the other way around

Spending isn’t a fixed law of physics, both sides of the ledger are choices.

If a government promises a tax cut before cutting the spending to pay for it, they have actively chosen to use debt as the bridge. You can't pass a revenue slashing law today, point at the unchanged baseline expenses tomorrow, and say 'spending forced us to borrow.'

The decision to cut the revenue creates the requirement to borrow. Pretending otherwise is just a semantic shield to avoid owning the net fiscal impact of the policy.