INDEPENDENT NEWS

Pipe Dream Economics from Act

Published: Wed 3 Nov 1999 01:04 PM
"Act's pipe-dream costings show Richard Prebble and Rodney Hide are living in fiscal fantasy land," Labour finance spokesperson Michael Cullen said today.
"The numbers are based on a mixture of wishful thinking, manipulation and misinformation.
"First let me deal with the claim that Act's tax cuts will "increase the standard of living for every New Zealander." The reality is that Act is now the high inflation/high interest rate party.
"The Reserve Bank will have to lean against the inflationary surge the tax cuts will generate by raising interest rates - and higher interest rates are a cost to anyone who has a loan and to the economy as a whole," Dr Cullen said.
"Act's programme will also hugely increase the gap between rich and poor because the 82 percent of taxpayers who earn below $40,000 will not get an extra cent from Act.
"The only impact on them would be negative. They would pay in the form of reduced social services so that Act could give the Prime Minister a tax cut of over $450 a week.
"That is more than unfair. It is immoral," Dr Cullen said.
He also took issue with Act's claims that it could pay for its tax cut agenda without cutting spending, describing them as "self-serving garbage" and quoting Infometrics assessment that spending cuts of $850 million would be required next year and $400 million the year after.
"Act says it will pay for its tax cut strategy by "eliminating" the provision for future initiatives, which it dismisses as some kind of slush fund.
"This shows a woeful ignorance of how the budget works. The provision provides an essential contingency fund which has been used in recent years to provide drought relief and is now being used to finance New Zealand's East Timor mission.
"Act's intention to blow the lot on tax cuts will leave New Zealand unable to meet such contingencies and will force a cut in real per-pupil funding for primary and secondary education and in the Government's ability to respond to new health technologies and treatments.
"Act provides no basis to support its assumption that its tax cuts will create another 80,000 jobs. In fact a study by two Harvard professors - N. Gregory Mankiw and Lawrence Summers - found that tax cuts do not produce a strong or sustainable economic stimulus and can in fact be contractionary and the New Zealand experience of the 1996 and 1998 tax cuts was that unemployment rose the following year and growth fell.
"And where is the justification for Act's assessment that it will get $1.2 billion above book value for
the sale of TVNZ," Dr Cullen asked.

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