GST and the Clinton defence

"Read my lips - no new taxes''.

Many a politician has been caught with words on taxes that have come back to haunt them, and like George Bush, John Key and Bill English can now add themselves to that list.

Yesterday's rather embarrassing revelations that both Key and English pledged in 2008 not to increase GST under a National government came at a bad time, just as the Government was gearing up its sales job.

Early indications are the public is prepared to at least listen to Key's proposal to raise GST from 12.5 percent to 15 percent, in return for an across-the-board cut in personal income taxes and additional help for beneficiaries and superannuitants.

Ministers privately admit that a bit of a sales job is required, however, and they've been told to get out amongst their electorates and do just that. 

But it doesn't help when both your prime minister and finance minister are found out promising not to increase GST not much more than a year ago.

What makes it much worse, however, is the way Key has handled it.

What Key should have said was that times have changed, that that was then and this is now, that a group of eminent tax specialists had recommended raising GST and the Government was open to new ideas to give the economy a boost.

Instead, he tried to argue his way out of what was a pretty cast-iron pledge, by claiming that he was only talking about not raising GST in order to fill in the rather large hole in the Crown accounts.

That's disingenuous. You either raise GST or you don't. The impact is the same, whatever the reason. Saying you won't increase GST to fund a deficit - but you will for tax cuts - is a bit like promising not to borrow for tax cuts but only for infrastructure.

National rightly got exasperated with Labour's claim when in opposition that National was planning to borrow to fund its tax cuts plan. It correctly pointed out that all governments have a borrowing programme, and at the end of the day there's only one pot of money and a whole lot of demands on it.

It's your overall rate of borrowing and its ratio to your overall GDP, plus your ability to debt service that matters - not what you're borrowing for. Particularly when, as a government, you can shift money around at will.

Ditto GST. How the Government structures its finances is up to National. A rise in GST is a rise in GST is a rise in GST. The rest is merely a money merry-go-round.

By claiming that he's stuck to his word on GST, Key comes across as mealy-mouthed. He makes himself sound like a typical politician, prepared to dance on the head of a pin and resort to semantics to get himself off the hook.

It also raises the question of whether Key can be trusted to tell the public the truth, if he's prepared to give such a qualified answer to a relatively open question.

If Key's explanation is to be believed, then he should have said: "No, I'm not planning to raise GST to fund the deficit, but if you're asking whether I'd raise it for other reasons, like tax cuts, then sure, I'll think about it.''

For the record, I don't think Key's intention at the time was to mislead the public. I think he really didn't have any plans to raise GST. But things change, and sometimes it's just better to admit that you might have been wrong rather than attempt some sort of Clintonesque technical defence.

Key could have taken a leaf out of his deputy's book. Bill English also promised not to raise GST, but simply told Parliament yesterday that the Labour Party had done such a rubbish job of managing the economy that National didn't have much choice.

Much better, with the added advantage of chucking the issue back at the Opposition.

In the long run, Key's blunder is not likely to make much difference to whether or not the public accepts the GST rise. That's all going to depend on the compensation package the Government delivers in this year's Budget.

But it was still a bad look.

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