Clark compares two different things

New Labour MP David Clark blogs:

The Government has continued to spout the line that its tax ’switch’ in 2010 was ‘broadly revenue neutral’.

This is an outrageous claim.  It was nowhere near revenue neutral.

According to the IRD’s 2011 Briefing to the Incoming Minister (BIM), Government tax-take dropped from 35.1% of GDP to 31% of GDP during National’s first term.  In a time of high borrowing, and a projected $12 Billion deficit, a drop in the tax base of more than 10% is plain irresponsible. Falling revenue means we don’t have the funds to support our schools and hospitals.  Either that, or we have to borrow to fund them.  This ain’t good.

The ‘broadly revenue neutral’ claim has been relegated to the status of a bad joke by the honesty of the Government’s own tax officials.  In their 2011 BIM, officials made clear that only about 1.5% could be blamed on the Global Financial Crisis.  About 2.5 percentage points of its 4% revenue drop can be directly explained by Government policy changes (ie the 2010 tax package).

This is not a good start for a former Treasury official. He is comparing two different things. He is comparing the impact of the tax changes in 2008, 2009 and 2010, and using them to come to a conclusion about the 2010 tax changes only.

This would get you failed first years stats at even Waikato University.

What Clark leaves out of the equation was that Labour itself instituted some of the tax changes, which led to tax dropping as a percentage of GDP. It’s nice of him to give National all the credit for them, but it is not quite the case.

What the true comparison should be is whether the totality of National’s tax changes dropped tax revenue by more or less than what would have happened if Labour’s 2008 tax cuts had been fully implemented. And the answer is that over around four to five years, National’s changes look to have slightly less impact on tax revenue. This is because of course National cancelled their planned tax cuts for 1 April 2010 and 1 April 2011.

One can dispute the impact of tax changes, as it is not an exact science. It is impossible to know for sure how much revenue one would have got if a tax change had not occurred. But what one can not do is use the results of tax changes in 2008, 2009 and 2010, to come to a conclusion about the 2010 changes only. It is quite dishonest.