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.

 

[defensivebomb]

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

Nobody pays for tax cut. Tax always flows from the taxpayer to the crown. If a government decides to require less taxpayer money, less money flows from the taxpayer to the Crown. No tax money ever flows from the crown to the taxpayer

, they have actively chosen to use debt as the bridge

the bridge is debt to pay for spending

. You can't pass a revenue slashing law today, point at the unchanged baseline expenses tomorrow, and say 'spending forced us to borrow.'

Well, you can. Without spending, there is no need for borrowing.

The decision to cut the revenue creates the requirement to borrow.

Indirectly, yes, due to no other alternative source to pay for the spending. Everything is driven by the spending

Pretending otherwise is just a semantic shield to avoid owning the net fiscal impact of the policy.

Well, not really. Everything starts from spending. Otherwise, we wouldn't need to tax or borrow.

I get the indirect opportunity cost examples of trying to plug a revenue hole by borrowing, but that's not the mindset we should be looking at.

We should be looking at the government and saying:
- hey, every dollar of ours that you spend, take a hard look at it and make sure it is spent really wisely. Because we either have to borrow it, or extract it via tax. The only reason we extract it out of people via tax is because you are spending it. So spend wisely

 

[Damo]

Nobody pays for tax cut. Tax always flows from the taxpayer to the crown. If a government decides to require less taxpayer money, less money flows from the taxpayer to the Crown. No tax money ever flows from the crown to the taxpayer

the bridge is debt to pay for spending

Well, you can. Without spending, there is no need for borrowing.

Indirectly, yes, due to no other alternative source to pay for the spending. Everything is driven by the spending

Well, not really. Everything starts from spending. Otherwise, we wouldn't need to tax or borrow.

I get the indirect opportunity cost examples of trying to plug a revenue hole by borrowing, but that's not the mindset we should be looking at.

We should be looking at the government and saying:
- hey, every dollar of ours that you spend, take a hard look at it and make sure it is spent really wisely. Because we either have to borrow it, or extract it via tax. The only reason we extract it out of people via tax is because you are spending it. So spend wisely

I 100% agree with your last point. Every dollar the government spends should be looked at under a microscope to ensure it’s spent wisely, because it ultimately comes out of our pockets.

But that’s exactly why the 'spending only' argument fails here.

By passing a tax cut before making those hard decisions to cut or optimise spending, the government did the exact opposite of what you’re advocating for. They chose the easy political win of reducing revenue today while locking in the exact same spending levels tomorrow, knowing the immediate shortfall would be punted to the debt ledger.

If we want them to spend wisely, we can't let them decouple the two sides of the equation. Cutting revenue without cutting spending is kicking the bill to future taxpayers.