OnPoint by Keith Ng


Like the mule with a spinning wheel

Another monster surplus to slay, eh? God, those billions really are a blight on New Zealand. How will we possibly... okay, you get the point.

At least this time National is coming out and bluntly saying they want to raise debt levels - but that okay. It's a reasonable point - debt isn't necessarily a bad thing - but Bill English's framing of the issue is a bit disingenuous.

The key message he was trying to get across was that debt wasn't a bad thing and that investment in infrastructure is usually funded by debt. That's fine. But then he goes on to say:

So there is no debt problem and hoarding cash as if you did has become a pretty severely limiting factor in future investing,"

That would be the case if the government was trying to run a surplus instead of investing in infrastructure. But this is not the case. Where they have not funded infrastructure projects, it's been because the project is not cost-effective on its own merits, not because it doesn't want to take money out of the surplus.

In fact, the exact opposite has been true. In the last election, National pointed out that the government has been funding infrastructure out of cash so that it makes their surplus look smaller, accusing them of dodgy accounting. (FYI: They have been funding infrastructure out of cash. It is unusual, but whether it's dodgy is a question of public accounting.)

It means that whether infrastructure is funded from cash or from debt makes little difference (apart from interest) on the long-term debt, and the whole infrastructure argument is a big fat red herring. If there is underinvestment in infrastructure, it's because there's underinvestment in infrastructure, and neither the surplus nor the cash vs debt argument factor into it.

If National is serious about infrastructure, then they need to say where the problems are and commit to increasing spending on it. Until then, this sounds more like the first half of a line that goes:

1) More debt is fine,

2) Infrastructure should be paid for out of debt.


3) We can afford a bigger tax cut than what Labour will offer. (Surprise!)

Or a monorail.

I'm not against the idea of a tax cut, or even of spending the surplus, but I'm just sick of this compulsion to spend because it's there. Sure, there's money in the bank, but why spend it? What are we getting in return? What's the *value* of the spending, compared with decreasing debt?

The problem for National is that the value of a tax cut for the country as a whole is necessarily theoretical. You can't measure it's long-term effects on the economy and the people - but you can measure its value to individuals. So, the talking points cycle between the outright bribe, an intellectually-gutted talkback version of classical liberalism ("give us our money back"), and some well-flogged rhetoric about "more incentive for our best and brightest, stem the brain drain, etc."

There is a perfectly good case out there, explain why it's better for us to be spending the surplus on tax cuts or whatever rather than on paying off debt. I'm eagerly waiting for it.

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