Wednesday, December 22, 2004

New Zealand's HUGE surplus

As DPF wrote recently on just left
"The claim one can not give those who pay the tax any of their money back is just ideological fervour."

But so too is the claim that one should.

In theory what matters is the efficiency with which one uses ones capital (which as most people looking for tax custs would admit is not great), and the cost of capital. This allows one to chose a debt position. As one finds more efficient uses for capital one can take a more agressive debt/equity ratio, of course this all amounts to government speculation (And one needs to be aware that a lot of government expenditure is effectively consumables).

Then one needs to consider the role of the government as the "insurer to the nation" where it should tax low and spend big (well bigger - particularly since more expenditure items should become feasible with cheeper asset prices) in bad times and tax high in good times.

Now UNLESS you think 4-5% is average growth then any money taken now (which does not completely destroy the growth) can be returned by tax cuts (and other methods) when the growth falls below whatever the long term average is (let us hope it is 4%!) in order to push the growth rate back up to that mark.

A risk adverse nation would arange for the low point in a bad cycle (ie coming out of a bad depression) to have a debt level that is acceptable - this may well be related to international credit rating agencies.

One can see from the USA how one can totally swing around a economy - if tax cuts had been given in the Clinton years wthere would have been much less credit to pull the bush tax cuts out of.

There is of course a secondary argument about exactly how much the state should spend on "consumables" ie social welfare and so forth, as opposed to giving tax cuts. But that is an argument for another post.

2 Comments:

Blogger Greyshade said...

We also need to differentiate between transfer payments (where the Govt is giving at least some of our own money back -possibly under another name), benefits in kind (and whether we'd have otherwise paid for them ourselves and "core" govt expenditure. Sometimes benefit cuts are indistinguishable from taxes (eg Superannuation Surtax)- recognising this is one of the keys to my UMR proposal which I see you have commented on.

2:21 PM  
Blogger Genius said...

UMR is a good idea - I was sceptical at first but it does indeed seem to make sense.

2:53 AM  

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