Chthonic Wildlife Ramblings

Inspired by Dilbert, I thought I'd make a couple of remarks on why NZ can't afford tax-cuts.

The line taken by the Finance Minister (Michael Cullen) is that while the operating surplus has a few billion, we really can't afford any tax-cuts because we will be operating with cash deficits very soon.

Note how the subject shifts from the operating balance to the cash balance. What's it actually mean?

Well, the operating surplus is what you have before say, you put billions into the Cullen fund. This is Cullen's idea of how to (partly) fund future superannuation (retirement) expenses. The cash balance is what happens for example, after this money is put into the saving schemes. Note that this money hasn't actually been spent.

The money in effect is really there for tax-cuts. It's like telling you kids you can't raise their pocket money, because even though you've got a lot more money in your savings accounts, you just don't happen to have any cash in your wallet. We're not too poor to afford tax cuts.

Of course, one of the reasons we are going to move into a cash-deficit position, is that tax receipts are going to slow down as the economy slows. The economy is slowing because the government has not done anything practical to lift productivity.