Election bribes, why taxpayers lose while polticians win

Rodney Hide explains how election bribes work, and how when politicians win, invariably it is the taxpayers who lose.

To succeed politically, you must win votes.?That?s what counts.?If you don?t win votes, you won?t be a politician.?It?s the one-and-only job requirement.

The need for votes drives politicians.

And with that insight economics explains and predicts political behaviour just as it explains and predicts all human behaviour.

Labour leader Helen Clark won the vote of students (and their parents) in 1999 promising to wipe interest payments on their loans.?She won the vote of graduates in 2005 promising to wipe their interest payments, too.

Her purpose wasn?t to reduce the burden of debt on students.?Her purpose was to win the votes she needed to win power.?The promises were straight election bribes.

The policy takes from the working poor ? the truck drivers, the self-employed, the factory workers ? to give to the privileged ? the future lawyers, accountants, professors and company executives.

To win, Ms Clark had to reach across to would-be National voters and secure their vote.?She did so by reverse income redistribution: she took from the poor to give to the rich.

It?s not pretty politics but, for politicians, pretty is winning and losing is ugly.

I well remember door-knocking in blue ribbon Epsom to have students and their parents telling me they were voting Labour because ?they would be mad not to.?

The 81,000 students who received Ms Clark?s full interest write-off benefited on average by $18 a week.?That?s something they noticed ? and voted for.?The nation?s two million taxpayers lost just 74c a week.?That?s a sum they didn?t notice and didn?t affect their vote.

And the taxpayers got nailed, and John Key came along and banged int eh nails some more by refusing to reverse it despite the economic conditions at the time.

The politics works because of the asymmetry in the tax and spend.?The spend is focused on the few and is announced with great fanfare and hype.?The tax is spread among the many and is taken sneakily, invisibly, without mention.

GST is hidden away in everything we buy.?PAYE is gone before we even see our wages.?And who knows what the full tax is on driving a car?

Every dollar spent on making student loans free is shaken out of a poor taxpayer.?But voters don?t see it or feel it.?Politicians make sure of that.

Our tax laws are designed to hide from taxpayers what they pay.?There would be a revolution if each of us were required every year to write a cheque for our share of the tax take.

Politicians aren?t stupid.?They know the student loan scheme?s a crock.?Nonetheless, it?s here to stay.?The logic of democracy ensures its survival.

National?s John Key beat Helen Clark and summed up the scheme perfectly: ?It?s not politically sustainable to put interest back on student loans.? It may not be great economics but it?s great politics.?

Economics explains why Ms Clark introduced free student loans and why Mr Key kept it.?It?s poor policy but politically perfectly rational.

John Key has wound back very few of Clark’s excesses.

In the midst of the global financial crisis which wiped out any surpluses these excesses were cemented in and now classed as “entitlements”. They became structural and costly…and it is the taxpayers who suffer.