Quote: From Keynes to Key

A famous quote from Keynes:

When the facts change, I change my mind. What do you do, sir?

This is what John Key really needs to say about the “revelation” that he wouldn’t increase GST in 2008.

John Key now knows that increasing GST and reducing income tax is seen as a way to improve economic efficiency – so he is willing to do it.  When he said they wouldn’t do it, it was because the facts he was labouring under were different.

Criticising him on the basis of a speech in 2008, before the impact of the great financial crisis was clear, is petty – shame on the politicians, and other members of society, indulging themselves in this.

  • http://interest.co.nz/ratesblog Bernard Hickey

    But the ‘optics’ of it are awful, particularly for a man pathologically against politicians who over promise and under deliver.
    cheers
    Bernard

  • http://www.tvhe.co.nz Matt Nolan

    @Bernard Hickey

    Optics? Which man are we talking about.

    I didn’t think much of the speech, and I think its really just created uncertainty – which sucks. But I’m not going to jump on his back for changing his mind on something when the facts change – which is what Labour seems to be doing here.

    There is still a chance that everything will come good in May – as there is still “room” for “some” policies. And when it doesn’t, we can write a lot of irrate blog posts about it ;-)

  • kyotolaw

    Can we get Key to say this about WFF, interest-free student loans and superannuation also? Because using such an awesome quote on something as small as GST seems a waste really…

  • http://www.tvhe.co.nz Matt Nolan

    @kyotolaw

    His opinion on them hasn’t changed though right?

    If he does change the policy he could definitely roll out the quote though – I would cheer even if I don’t like the policy change, just because it is a famous economics quote.

  • Miguel Sanchez

    Well, he said that a half-decent National government wouldn’t need to raise GST. Are you saying he’s changed his mind as to whether his government is half-decent? ;)

  • http://www.tvhe.co.nz Matt Nolan
  • http://sigma1.wordpress.com sigma1

    I think we almost need a registry of promises – that is parties put out manifestos and policies as much as possible to give people a general direction on their thoughts but they have to nominate, say, three, that are really really important and that the media and the public should evaluate them on carefully on whether or not it is reasonable to let them get away with not making good should they be elected.

    With the deluge of information feed to people through the media, and the horrendous complexity of modern society its a bit much to demand politicians hold to every promise. However, for the same reason it is also increasingly difficult to know which ones they are staking their integrity on as far as the public is concerned.

    (To be sure, I am only being half flippant here – integrity, imagination, and competence are getting harder to reconcile in the era of the 24 hour news cycle!)

  • Red Rosa

    Promises, promises….

    Never mind, kiddies, it’s simple enough. The PM and his Cabinet mates get more cash in hand.

    The middle NZ’ ers get less when GST goes up. And the middle NZ’ers with modest rental properties? Well, they get stuck twice. Hard luck, guys.

    Otherwise, how can he pay for the tax cuts?

  • http://publicaddress.net Keith Ng

    Rational people can and should change their minds, but this isn’t just thinking GST was bad two years ago, and thinking GST is good now. This is saying that “elect me and I won’t raise GST”, then raising GST. Quite different!

    And for all the wonky benefits of GST, isn’t horizontal equity re:property quite a lot more urgent than the efficiency gains of GST? How much impact is it expected to have on savings, anyway?

  • http://publicaddress.net Keith Ng

    @Matt Nolan

    http://www.nzherald.co.nz/taxation/news/article.cfm?c_id=335&objectid=10625344

    What impact will a GST increase have on income? Will it reduce real purchasing power in the long-term?

  • http://www.tvhe.co.nz Matt Nolan

    @Keith Ng

    Although he was saying “I won’t increase GST to lift taxes”. Now he is saying “I will increase GST to change the tax mix, but the total tax on households will be unchanged”. I don’t feel like this is a violation of an election promise.

    @Keith Ng

    In the long-term, if the tax does nothing about efficiency and is perfectly compensated then … nothing will happen.

    If GST rose and nothing else happened, it would reduce real purchasing power in the long term.

    GST is just like a flat income tax on non-interest income.

  • http://www.tvhe.co.nz Matt Nolan

    @Red Rosa

    “The middle NZ’ ers get less when GST goes up. And the middle NZ’ers with modest rental properties? Well, they get stuck twice. Hard luck, guys.”

    Except for the doubling in house prices …

    It is fully compensated, so any change in GST will be meet by an equal change in income tax.

    However, if you have a net positive asset position you will lose out – but this is just telling us that the tax change is likely to impact more on older New Zealander’s then younger New Zealander’s.

    http://www.tvhe.co.nz/2010/02/11/more-winners-and-losers-from-gst/

  • http://www.tvhe.co.nz Matt Nolan

    @sigma1

    Tbf, I’m not really sure he’s broken any promise here, I would say:

    “Although he was saying “I won’t increase GST to lift taxes”. Now he is saying “I will increase GST to change the tax mix, but the total tax on households will be unchanged”. I don’t feel like this is a violation of an election promise.”

  • http://publicaddress.net Keith Ng

    “Although he was saying “I won’t increase GST to lift taxes”. Now he is saying “I will increase GST to change the tax mix, but the total tax on households will be unchanged”. I don’t feel like this is a violation of an election promise.”

    The original problem with a GST hike wasn’t the total tax increase, but in its equity impacts. Not that we know what the compensation package is, but if the summed package is regressive, then the point still stands.

  • http://www.tvhe.co.nz Matt Nolan

    @Keith Ng

    “The original problem with a GST hike wasn’t the total tax increase, but in its equity impacts”

    Ahh did not realise that. Still, if his knowledge of the equity impact is changed then the policy change still seems fair – GST isn’t actually regressive after all.

    “Not that we know what the compensation package is, but if the summed package is regressive, then the point still stands”

    The package sounds like it will be an increase in GST combined with a change to everything else to compensate. So the thresholds increase in a way that treats the GST lift like inflation, and the tax rate changes to leave the EMTR’s unchanged. In this case we have the same tax package as before – except that:

    1) The tax on interest is reduced,
    2) The GST component is “expected” to be easier to enforce, reducing costs and reducing tax avoidance.

    I would also note that, if we believe the poor have borrowed more coming into this change – then they are the winners from this:

    http://www.tvhe.co.nz/2010/02/11/more-winners-and-losers-from-gst/

    It is actually the older generation, rich with housing assets, that get pinged.

  • http://sigma1.wordpress.com sigma1

    @Matt Nolan oh sure – I do however think the nuance of the argument may be lost on the general public – sort of what I was hinting at with my mildly absurd suggestion. In amongst all of the noise I really think that the GST “promise” story is not all that important, but its simple and it seems to be the one seeping through. We need ways to move the media on from these kinds of stories – If people are outright enraged by the potential GST rise that is different and perfectly reasonable story to run with, but I guess that would require reasonable conversations like the ones happening above (and below!).

  • http://www.tvhe.co.nz Matt Nolan

    @sigma1

    Tbf, I blame economists – they are the ones that are supposed to sell this stuff to the public.

    As an economist, I feel comfortable blaming my clan ;-)