Friday, August 12, 2005

Tax and the electorate

I have a theory why electorates seem to respond quite well to tax cuts even though the vast majority won’t receive much.
the first reason is that older people earn more than younger people some people who used to be below average income earners are now above average and expect to earn more in the future they thus have no incentive to worry about what they used to earn.
Also many younger voters are poorer than average now but they are reasonably optimistic about what they can earn in the future and thus expect in the future for the tax cuts to benefit them.

The second reason is the old standard that it is hard for a voter to directly equate hte tax cut with a reduction in the government spending that it will relate to. Sure a lower tax rate may encourage growth (assuming it is at the expense of unproductive government spending) and thus allow a higher relative total tax take but this is VERY unlikely to fully compensate.

In this regard the argument for tax cuts rely upon two errors of judgement by voters.
This does not mean that tax cuts are bad - jsut that fundimentally a redistribution of wealth policy should win votes up until the point at which it reaches a critical level of harm to the economy and most most governments will sit to the right of this "ideal democratic" point although they will sit to the left of the "ideal GDP growth" point which may well reflect better the welfare of future generations.

As for nationals tax policy I predict the electorate will be somewhat disappointed when Labour spells out exactly how much it is for the average NZder. Arguments about NZ economy growing faster will not go down well and are unconvincing in the short term UNLESS somthign bad happens to the economy that highlights a downturn.

I am still predicting a Labour victory with small party support. But I feel now it will be fairly similar to last election just less UF less NZfirst less ACT more National.


Post a Comment

<< Home