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John Bishop overview on Budget 2017

Budget 2017 overview - a taxpayer perspective

Budgets are essentially political documents, and especially in an election year. It’s the government of the day’s bid to win the election.

And in 2017 Steven Joyce is embarking on the biggest election year spend up since Roman politicians in the dying days of the republic gave out free bread to get votes from the plebeians.

In a bid for re-election Joyce has sought to soothe all the political itches he could, and to leave little room for Labour and other parties to outbid National.

With all the changes to personal incomes and transfers taking place from 1 April 2018, there is a clear political message: you have to vote for National (or one of its support parties) to get these benefits.

Total government spending is increasing by $5.0 billion to $100.8 billion and even more spending is promised. But the really sharp increases are taking place in the next financial year, with more modest increases later (although still much larger than previous years).

All budgets have a centrepiece, the presentational maypole around which Ministers dance with all the glee they can muster.

This year there are four pillars of which the families package is the central one.

This delivers an average of $26 a week to 1,340,000 families at a cost of $2 billion over four years. Tax thresholds are adjusted, although tax rates are not changed. The accommodation supplement is simplified and increased. And Working for Families also gets more. 

What’s interesting about the changes to the Accommodation Supplement is that the rates will now vary by region, which will deliver more money to families in West and South Auckland and parts of Wellington and Christchurch, precisely the places where low and middle-income families are struggling financially, and also struggling to vote National.

The families package is supported by three others. There’s more money for public services: another $3.9 billion for health; $1.1 billion for education mainly to fund roll growth.

And $4 billion on infrastructure. Included in this is $812m to restore SH One north and south of Kaikoura; $450m for more rolling stock for Kiwi Rail; $436m for Auckland’s City Rail link; another $392 m for new schools, and much more.

Ministers even found $11.4 million to upgrade Radio New Zealand’s technology.

Finally, there’s the business growth agenda, an omnibus term for more money for programmes supporting business like Innovative New Zealand ($373m) which gets a total of$433 million. 

Governments go to a lot of trouble to frame the debate over the budget in terms favourable to them.

This budget simply continues that tradition. If government rhetoric is to be believed all the extra spending is responsible, necessary and will achieve its intended purposes.  Enabling ordinary New Zealanders to share the benefits of economic growth is the mantra uttered by Ministers. 

And the assumptions underpinning the projections are bold: growth averaging 3.1% over the next five years; no sharp fiscal shocks, and surpluses continuing from $2.9 billion this year to $4.1 billion next year and $7.2 billion in 2020/21. And that’s taking into account all the extra spending announced today.

Average wages will continue to rise and unemployment will continue to fall. And the balance of payments will not blow out. Nominal debt will remain broadly the same, although it will fall as a percentage of GDP.

There’s only the vaguest of commitments to actual changes in tax rates: Minister Joyce told the budget lock-up that the government “intends to continue to adjust tax and transfer settings as fiscal conditions allow.”

In fact on today’s numbers the average wage earner is going backwards under Mr Joyce’s deal because the full extent of fiscal drag since National came to power has not been compensated for.

In fact, the analysis prepared by the Taxpayers’ Union released prior to the budget showed that for average earners on $57 000 a year, a reduction of $26.17 a week was needed to compensate for fiscal drag caused by wage inflation. Joyce has delivered a reduction of just $20.38 which means a person on the average wage has actually gone backwards under this government.

A professional earning $120 000 was due $42.04 on the Taxpayers’ Union figures. Joyce delivered just $20.38 because there has been no change to their upper tax threshold.

The good news is that there are no new taxes other than a very small rise in the EQC Levy – to a maximum per household of $69 a year.

Overall this is an election year budget intended to propel National back to power. Any benefits it might have for the economy or for ordinary taxpayers seem secondary. Real tax reform is still needed but not forthcoming in this budget.

John Bishop
New Zealand Taxpayers' Union


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