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  • Robert MacCulloch

Richard Prebble has it Right !

Former ACT Party leader, Richard Prebble, has been arguing that we have four Labor-like Parties standing in this election (being National, Labour, Greens and NZ First).


The National Party tax announcement today proves his point. Why? Since National are trying to out-do Labour by announcing tax cuts - but these tax cuts are only temporary, lasting 16 months. In percentage terms, they favor low and middle income earners. The Nats are saying that they would like Kiwis to go out and spend, not save, the proceeds. Such a move is defined in the jargon of economics as a temporary "expansionary fiscal policy". This policy is what John Maynard Keynes proposed when economies were in recessions. Such Keynesian "demand management" policies are often associated with more left-leaning parties.


Right wing parties, by contrast, tend to support smaller government, which corresponds to lower (permanent) levels of taxation and lower (permanent) levels of government spending. The only political party in New Zealand going into the election offering those kinds of polices is the ACT party. So in this sense, Richard Prebble is on the mark.


Is National's policy good economics even on Keynesian grounds? No. Why? Since Keynes recommended such policies when the economy was in the midst of a recession. But our recession is in the past ! GDP is rebounding sharply upward now. Furthermore, the wage subsidy scheme was more of an insurance policy, like disaster insurance, which paid funds to insure workers and firms against an unexpected shock. Demand management was not its focus, since the recession was a recession "by design". The government didn't want people to go out and spend their money - since that may have spread the virus.

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