Beyond tax tweaks: the real path to New Zealand's prosperity

Dr Bryce Wilkinson
Insights Newsletter
31 August, 2023

This week, the National Party revealed its tax plans for the election. These are aimed at people with average incomes.

Overall, the changes are minor. Yes, many people would be able to earn more before moving into a higher tax bracket. And yes, there are some further tax cuts for low- and middle-income earners.

These tax cuts will cost $14.6 billion over five years.

But still, this is only a small reduction in the government’s expected tax revenue. It makes you wonder, why National would not go for bigger changes? Perhaps it will when Treasury’s pre-election forecasts are published.

But the signal for now is that National broadly plans to maintain Labour’s current spending levels. These spending levels are high. And big spending means little room for tax cuts.

This is disappointing because New Zealand’s government is too big. And it is getting bigger.

Figure this: Budget 2023 projected that Government spending during the next five years would be 33% higher on average than in 2019. And it is not as if we would get better government services from all that spending.

The state of New Zealand’s finances is concerning.

By the way, it is not just that the state is too big. It is also that a lot of spending happens without proper scrutiny.

There is another problem because we are also running big fiscal and external deficits. Not even the high taxes we pay are enough for the government to pay for all the things it does. And, as a country, we are spending more than we earn.

But deficit-spending is risky, especially when our earnings from exports like dairy and tourism are declining.

Of course, politicians want to get elected. And so they like promising things like tax cuts. I get that.

But the country actually needs something else.

As a nation, we can only move forward if we become more productive. That means becoming better and more efficient at in everything we make, do, build, design or produce.

If we look at this bigger picture, the real question is not about minor tax adjustments. It is about the policies to help New Zealand prosper in the long run.

For instance, improving education and skill development. Supporting businesses to innovate and grow. Does hard work get rewarded?

While tax tweaks grab headlines, these issues need voters' attention.

Instead of finding different ways of slicing a meagre pie, how about baking bigger and better pies?


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