Tag Archives: tax cuts

Risks and scenarios – are we heading for a political “perfect storm”?

Further to Be careful what you wish for:

Brian Fallow from the New Zealand Herald writes about the fiscal risks facing the New Zealand Government.

The chapter on ‘Risks and Scenarios” from the Budget Economic & Fiscal Update 2008 makes for interesting reading too.

What worries me is that we might be heading for a political “perfect storm”: A right-wing (National) government, governing without the encumbrance of coalition partners, facing a recession and a (tax-cut caused) fiscal crisis, amplified by an Exchange Rate crisis (forcing interest rate rises that compound the recession) etc…in such circumstances I’d be willing to bet on deep and extensive privatisation of State assets (education, health, water, Kiwibank); benefit system “restructuring” (i.e. cuts); and other expenditure cuts (e.g health, education, social services).

Throw in a couple of extreme weather events, and given the level of our external debt, we might end up on the phone to the IMF begging for structural readjustment.

Let’s hope not!

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Be careful what you wish for

Unless there is a huge political earthquake in New Zealand, the coming General Election is going to give us a government led by Labour or by National. Both parties have promised tax cuts. In deciding who to support, voters need to be aware of the consequences of those tax cuts, and to consider the likely response of the next government (depending on its make up) to those consequences.

People are certainly feeling the pinch from higher fuel and food prices, and from higher interest rates – the hope of some kind of relief must be appealing. But tax cuts won’t offer much relief, even in the short-term, and the likely longer-term consequences may give many pause to think (if they pause to think).

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Filed under Aotearoa New Zealand, Barry, economic analysis