There is plenty of noise coming from commentators and observers alike, suggesting that the Government should abandon their tax reduction programme.
They make a fair point. The Government has given us some dark financial and economic news over the last six months as they have sought to get to the bottom of the financial woes they inherited. We have been living well and truly outside our means and since they were sworn in in November, Prime Minister Christopher Luxon, Finance Minister Nicola Willis and co have tried to be upfront about the state of the books in an effort to have Kiwis understand that we’ve run out of financial lifelines.
So, if the news is so bad, why would we be taking an axe to the revenue line, in the form of tax cuts? It’s a reasonable question and it’s worthy of debate.
But I agree with the Finance Minister. She has staked her job on getting the tax reductions through in this year’s Budget. And she must.
The reason is simple. The Government we have today campaigned on delivering tax cuts to the people. They said that if they were elected, they would increase after-tax pay for the squeezed middle by shifting income tax brackets.
And they won. So deliver they must.One thing this country would do well to have is a return to old-school political values. Values that see a newly elected government doing everything possible, despite the odds against it, to honour the promises it made to the electorate.
Delivery against those promises, alongside our overall wellbeing, should be the standard by which a government is judged.
This conversation comes at a time when there is equally plenty of commentary that confirms our worst fears about the trustworthiness of our elected officials and the media who for the most part, represent them to the public. If we are to believe this week’s polling, just one-third of us trust the media. Even less than that trust our politicians.
And that is where we have to start.
Restoring faith in government means that a government keeps the promises on which it was elected. It means a government that prioritises work on the things that matter most to the majority of the electorate. Those things in all likelihood are education, health, crime, transport, and equality of treatment under the law.
I will add another factor that some of us may overlook. We need a government that delivers on the above while watching the cost base and ensuring that every dollar of taxpayer money spent is spent well.
The last Government prioritised reckless but headline-grabbing promises in terms of housing, poverty, crime and health. They then filled government offices with thousands of additional bureaucrats to give the impression that they were doing something. They increased taxes and borrowed millions to pay for it all. And they ultimately achieved very little.
Most of us would want the opposite.
So now we have a government with a well-publicised and transparent list of things to do, a list that is shared with the public, updated quarterly, and with items that are ticked off in a public manner along the way. They’re seeking to reduce the number of people working in government departments to get the country’s cost base down. And, they’re trying to keep their promise to reduce taxes.
Which would you prefer?
At a time when both the media and our politicians have major issues of trust, both groups need to double down on recovering the confidence of the people. The best way to do that is for government to be transparent, to honour their promises, and for media to report their activities with accuracy and openness and without distortion.
The trouble with the tax cut policy is that it appears unaffordable, given the new light shining on our financial position. However, that is for the Government to work out, not the commentators nor the people. Political parties, when campaigning, need to be sure that their election promises can be honoured.
The process goes like this: We listen to their policies. We vote based on our support for those policies. We then expect a government to deliver on what it promises.
There’s been plenty of acrimony about the new Government’s decision to reverse the policy of the previous Government, thus allowing interest to be deducted by landlords in the calculation of taxable income. The opposition leaders are calling it a $2.9 billion tax reduction for the Government’s wealthy friends.
In fact, what it is, is a return to what we had for as long as any of us can remember before the previous Government stopped it, for no apparent reason. Those landlords became the only business owners who were unable to deduct interest as a legitimate business expense. The latest update seeks only to reverse the ridiculous anomaly.
And besides, it’s what they promised to do.
We can argue that tax cuts are a stimulus, making it more difficult in an economy that’s fighting inflation. And we can argue that tax cuts rob money from worthwhile government initiatives. Both are good arguments. But we have to remember that the Government was voted in with a series of policies that included the changes to our taxes.
It’s what they promised to do.
And here’s the other thing. Can you imagine the furore, delivered by those same commentators and observers mentioned above, if Willis came forward and said, as she has been under pressure to do, that the tax cut package would not be delivered in this year’s Budget? I have no doubt that many such observers would shout “broken promises” and begin clamouring for her resignation.
Government is meant to be about the people who comprise a community rather than the politicians themselves. Tax cuts are for the people. In this case, those people will primarily be low- to middle-income earners, the people who work hard all day for modest returns. As “tax bracket creep” has evolved, these people have seen their modest pay increases subjected to increasing levels of taxation for years. These people are the Government’s “core business” and they need and deserve some relief.
Taxation should be about collecting the minimum amount of money from all taxpayers, in a manner that is fair and equitable, in order to enable the delivery of essential and desirable services, firstly for our people to prosper, and secondly, so that we play an appropriate role in the international community.
It may surprise many to learn that the Government is not in business for the various interest groups with an agenda to run or a cause to champion. More and more is being asked of our government. There are already too many things that government does that they shouldn’t.
By way of example, at the moment, they’re even being asked, almost daily, to come up with a plan to save the media. Here’s a hint. It’s not their problem! Why are the media so focused on asking Melissa Lee to come up with a plan to save their businesses? Businesses that the media owners themselves have failed to manage in a manner that ensures their long-term success.
Indeed, the quickest way for our Government to get back on top of matters financial is to get out of the things we shouldn’t be doing. We have government bureaucracies that get bigger and bigger every year. In this writer’s opinion, the cost of that bureaucracy is the single biggest issue facing the New Zealand economy.
To their credit, the National-led coalition is focused on reducing the number of government employees. Yet again, there are howls of protest, but the reality is that their stated reduction targets are less than the numbers by which the Government bureaucracy grew in the last 12 months alone.
The quest for efficiency across government will need to be a multi-term focus if we are to get our cost base back to something that is sustainable.
The New Zealand Initiative, an independent research and policy think-tank, recently released a comparison between the public policy frameworks of New Zealand and Norway. Norway has a similar population to New Zealand. Here in New Zealand, we have 41 government departments and 78 ministerial portfolios. By contrast, Norway has just 17 departments and 20 portfolios.
Good government is not about building bureaucracies that get bigger and more expensive every year. It is about getting outcomes for the society that government is intended to serve. Big bureaucracies fall into habits of doing business with each other. That is not how outcomes are generated. We need a better, simpler and less costly way.
Thankfully, it feels like we have a government that is focused on finding that better way. I get the impression that Luxon and Willis, despite the odds that are against them, are trying desperately hard to deliver on their promises while making government more efficient.
To date they have demonstrated some resilience. But it’s early days. They’re just six months into a three-year term. That resilience will be tested by financial metrics and rightly challenged by the questioning of informed commentators.
However, if we are to recover a level of trust in our parliamentary system, and the politicians who occupy the House on our behalf, those politicians must act in the interests of the people who put them there.
And that means that they must, without exception, deliver on the promises they make.
Bruce Cotterill is a professional director and adviser to business leaders. He is the author of the book, The Best Leaders Don’t Shout, and host of the podcast, Leaders Getting Coffee.
This article first appeared in The New Zealand Herald 13 April 2024.
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