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Budget 2018 - A classic Labour Party Budget

Dear Supporter,

Lock-up packOur analysts have just left the Government’s Budget lock-up having pored through the largest budget media/analysts pack we can recall and listened to an early version of Finance Minister Grant Robertson’s speech which he has just read to Parliament.

You can read our summary comments to media here.

Except for the appropriations, Budget documents are essentially political. The key announcements the Government is hanging its hat on, are listed at the bottom of this email.

Government books and the economy looking rosy

Robertson’s first budget was written in extraordinarily benign circumstances. The economy is growing at a sustainable rate of around 3%, tax revenues for the June 2018 year will exceed Budget 2017 estimates, unemployment is down to 4.5%, employment levels are very high at 73.1%, and public debt at 21.7% of GDP is low and trending downwards. 

The economy is in vastly better shape than any new Government has inherited since 1972. That year Labour leader Norman Kirk won with a thumping majority and an inexperienced team. Labour lost to National’s Rob Muldoon, with a similar majority in 1975, and no more clues as to how to manage structural problems with the economy, which led to the economic crisis of 1984 and the Lange/Douglas reforms. 

Prime Ministers Bolger, Clark and Key would have been over the moon if they could have assumed office with today's economic fundamentals.

Two big wins for taxpayers:

  1. Fiscal responsibility

It is very encouraging that the Government is remaining within the pre-election ‘Budgetary Responsibility Rules’.  We think Steven Joyce's allegations that Labour had an $11.7 billion hole (which Labour vehemently denied) had also been helpful in keeping the Government restrained in the face of criticism from some on the left who say they should borrow more. 

  1. Independent election policy costing office

Budget 2018 announced that “public consultation will be launched in August on establishing an independent body to better inform public debate in our democracy.”   This is something the Taxpayers’ Union has been pushing for since 2014 – for transparency and accountability of what political party policies will cost taxpayers.

For decades political parties during election campaigns have made allegations about expenditure policies of others.  That’s why we worked so hard last year with our election “Bribe-O-Meter”. 

Tax cuts for hot horses

In terms of tax relief, unless you breed horses you are out of luck. Winston Peters has announced $4.8 million in tax reductions for ‘high quality’ horses (defined in the media release as being based on bloodlines, looks, and racing potential!).

More corporate welfare (this time green)

The Greens’ major budget announcement was a “Green Investment Fund” to “transition to a net-zero-emissions economy by 2050.”  The budget sets aside $100m for this corporate welfare capital funding.

Treasury forecasts average earner paying top tax rate by 2022

Budget 2018 projections show that the average worker will be on an annual income of $72,000 by 2022. That puts them in the highest income tax threshold (33%) which still kicks in at $70,000.

This was inevitable after eight successive Budgets that have not delivered income tax relief, or indexation of tax brackets. We will be using these new projections in the next round of submissions to the Tax Working Group to push for indexation.

Growing the pie vs dividing it

Overall, Budget 2018 is far more focused on dividing the pie than growing it.  With the exception of the already announced R&D tax credits, there is nothing to stimulate business confidence, industry, investment, and wages.

In terms of the R&D tax credit scheme, our view is that the breaks are marginally better than handing out corporate welfare grants (which are bureaucratic intensive with high transaction costs) but will almost certainly lead to gaming of the tax system.

Initial reaction

In the weeks to come our team will be working through more of the detail, but in the mean time our initial comments to media are available here:

Labour Delivers Predictable Budget In Sweet Economic Times Barrie Saunders

A Billion Dollars A Year For 900 Fewer Tertiary Students. WTF? Jordan Williams

Megan Woods Breaks Word – Gives Into Callaghan Self-Interest Jordan Williams

Government Acknowledges Merits Of Full Capital Expensing – But Why Just Bloodstock? Joe Ascroft

Budget Win For The Taxpayers’ Union With Announcement Of Independent Costing Office Joe Ascroft

New Green-Tint Corporate Welfare Scheme Mistaken Joe Ascroft

Treasury Predict Average Working Paying Top Tax Rate By 2022 Joe Ascroft 

Thank you for your support in ensuring there is a strong voice for taxpayers in the corridors of power.

Barrie signature
Barrie Saunders
Chairman
New Zealand Taxpayers' Union

 

Key announcements of Budget 2018

- $4.05 billion for Health, including:

- $2.2 billion in additional funding for DHBs.

- $362.7 million in free GP visits for under-14s and subsidised GP visits for community service card holders.

- $750 million in capital funding over the forecast period for hospitals and health infrastructure.

- $100 million in capital funding for deficit support will be available to DHBs in the 18/19 financial year.

- $1.934 billion for Education, including:

- $394.9 million in capital funding for new schools and classrooms.

- $370 million for 1,500 new teacher places by 2021.

- $590.2 million in additional funding for early childhood education.

- $249.3 million in additional funding for learning support programmes.

- $1.216 billion for Justice, including:

- $298.8 million to fund an additional 1,800 police officers over the next five years.

- $1 billion for R&D tax credits over five years.

- $1 billion in funding for the Provincial Growth Fund, including:

- $245 million for the One Billion Trees planting programme over ten years.

$904.9 million in additional funding for Foreign Affairs, including:

- $190.7 million in direct funding to the Ministry of Foreign Affairs and Trade to hire an additional 50 diplomats and open an embassy in Sweden.

- $714.2 million in additional foreign aid and development spending.

- $367.7 million in additional funding for the Defense and Veterans portfolios.

- $100 million for a 'Green Investment Fund' to invest in low-emissions projects and businesses.

- $181.6 million in additional funding for the Department of Conservation

Clinton Foundation petition delivered to Parliament

Outside ParliamentThis morning our team delivered our petition to end taxpayer funding for the Clinton Health Access Initiative, a subsidiary of the Clinton Foundation. All up, the petition received an impressive 6,400 signatures. 

In addition, around 1,800 people have used our website to write to the Minister of Foreign Affairs, Winston Peters, imploring him to stop the rort.

We had hoped to deliver it straight to Winston Peters’ front desk, but his staff insisted we used Parliament’s (taxpayer-funded!) mail service.

No doubt, the heavy stack of papers will have made an impression. Now we await his official response.

Treasury predict average worker paying top tax rate by 2022

Budget 2018 projections show that the average worker will be in the top income tax bracket by 2022 unless urgent changes are made to tax thresholds to adjust them to wage inflation.
 
Taxpayers’ Union Economist Joe Ascroft says “This is the eighth successive Budget that has not delivered income tax relief. While most New Zealanders expect only the most well off should pay the top rate of tax, if the current trend continues, even the average taxpayer will be paying the top rate.”
 
“In fact, much of the wage growth over the last eight years has actually just been keeping up with inflation, so while many families don’t feel much better off, they are paying more in tax than ever before. Inflation will similarly push families into the top tax bracket over the next four years.”
 
Note to editors: Treasury project the average annual income will be $72,000 by 2022. The highest income tax threshold (33%) kicks in at $70,000.

New Green-tint corporate welfare scheme mistaken

Putting aside $100 million for a “Green Investment Fund” to compete with investment bankers is a mistake, says the New Zealand Taxpayers' Union. 
 
Union Economist Joe Ascroft says “James Shaw says international investors are ‘already shifting into climate-aligned investments.’ If that’s the case, then why does the Government need to set up a fund to compete with them?”
 
“If low-carbon products and investments make good economic sense, there will be plenty of investors willing to fund them, and the fund won’t be required.”
 
“Instead of fuelling economic growth, this is just another example of picking winners, and taxing already successful businesses to fund potential failures. If the Government is interested in growing the economy, it should commit to scrapping all corporate welfare – including the Green Investment Fund – and put the savings into across the board corporate tax cuts.”

Budget win for the Taxpayers’ Union with announcement of independent costing office

The Taxpayers’ Union is celebrating that a policy it has pushed for since 2014 has been adopted by the Government.
 
Jordan Williams, the Executive Director of the Taxpayers’ Union, says:
 
“Since we launched our election ‘Bribe-O-Meter’ we have argued that New Zealand needs an independent election policy costing office.  This increases transparency, improves democracy, and helps prevent politicians and parties from getting away with pulling numbers from thin air.”
 
“Shortly after our lobbying, the Green Party picked up the idea, and today the Government formally announced public consultation on establishing an independent body to provide parties and the public non-partisan costings on their policies.”
 
“It’s not often the Taxpayers’ Union loudly endorses new spending initiatives, but here it will be difficult to find any taxpayer who will disagree with this initiative.

Megan Woods breaks word – gives into Callaghan self-interest.

The Taxpayers’ Union is fuming that Minister for Research, Science and Innovation Megan Woods has broken her word and capitulated to Callaghan Innovation’s pressure to keep its precious corporate welfare grant schemes, rather than phasing them out in favour of the new R&D tax credit.

Taxpayers' Union Executive Director Jordan Williams says, “When Minister Woods announced Labour’s R&D tax credit scheme earlier in the year, she said it would replace the growth grant scheme administered by Callaghan Innovation. But buried in the Budget appropriations we see that Callaghan Innovation’s funding for corporate welfare hasn’t been cut by a cent. Not even one.”

“Megan Woods has let down taxpayers, and we will be working day and night to redouble our efforts to defeat this corporate welfare industry that picks winners and favourites, and keeps Callaghan Innovation’s feather-nesters in their taxpayer funded make-work scheme.”

Government acknowledges merits of full capital expensing – but why just bloodstock?

The Taxpayers’ Union is welcoming the underlying principle in the only tax change announced as part of today’s Budget 2018 to promote economic growth: full capital expensing of bloodstock.
 
“Allowing full expensing of capital investments is the best tax reform no one has heard of,” says the Union’s Economist Joe Ascroft.
 
“This is the rocket Donald Trump has put under the American economy in its recent tax reform.  The economic advice is that it would massively increase business investment in capital and accelerate productivity growth.  Productivity growth is the most relevant factor in determining income growth – the measure will lead to increased wages.”
 
“The obvious question is why the Government would choose to favour just a single industry or special interest?  That’s an outrageous way to run a tax system, and isn’t fair to the hard working employees and employers in other sectors.”
 
Editor’s note: The fiscal impact of full capital expensing is largely temporal. Full expensing pulls forward any existing tax benefits into a single year, rather than increasing the total value of any tax benefits. More information can be found at paragraphs 71 to 77 in the Taxpayers’ Union submission to the Government’s Tax Working Group, available at http://taxpayers.org.nz/twg_submission.

A billion dollars a year for 900 fewer tertiary students. WTF?

Treasury has ripped off the political veil and exposed the Prime Minister’s flagship ‘free’ tertiary education policy with Budget showing that the numbers in tertiary education set to decline by 900 in the 2018/19 year.
 
Taxpayers’ Union Executive Director, Jordan Williams, says:
 
“The whole reason the Prime Minister pushed ahead with the billion dollar policy was apparently to increase the numbers accessing tertiary education. That was seen as more important than various other pre-election commitments which were pushed aside.”
 
“The Government wants to spend $1.2 billion a year – $694 per household – on free tertiary fees and the projected impact is 900 fewer students. Is this possibly the most wasteful policy ever?”

Labour delivers predictable budget in sweet economic times

From the Budget 2018 lock-up, the New Zealand Taxpayers’ Union is welcoming Labour’s adherence to its pre-election ‘fiscal rules’ despite delivering significant Labour-Party style sweeteners in the Budget delivered today.
 
Taxpayers’ Union Chairman, Barrie Saunders, says:
 
“This is a classic Labour Party Budget, in probably the best economic times inherited by a new Government since Norman Kirk’s election in 1972. As a result Labour have been able to deliver significant spending initiatives, and keep to the prudent fiscal targets.”
 
“Nevertheless, much of the Government’s claims about boosting funding to health and education do not match the numbers, with the growth of overall funding actually growing at a slower rate than the final budget delivered by the last National Government. The big growth is actually in Social Security and Welfare, with spending increasing by 10.9%, compared to 3.2% in the last budget.
 
“Of real disappointment is the focus in this budget of dividing the pie, rather than growing it. The only economic initiative is the R&D tax credit change announced earlier in the year.”
 
“In terms of tax relief to grow business, the only initiative comes in the form of allowing tax deductions for racing studs – full deductibility for capital stock. The Taxpayers’ Union has been arguing that this measure would be the most effective way of boosting industry and wages across the whole economy. Winston Peters has traditionally had a close relationship with the racing industry, however we do not support favourable treatment for business types in the tax system."

Confirmed: $5.5m for the Clinton Foundation in 2018/19

Hillary Clinton

UPDATE: You can email the Minister of Foreign Affairs about this issue by clicking here.

A subsidiary of the controversial Clinton Foundation is set to receive US$3.9m (NZ$5.5m) in taxpayer money in 2018/19, the New Zealand Taxpayers’ Union can confirm. This is in addition to NZ$8m given to the organisation since 2014.

MFAT claims that the organisation in question, the Clinton Health Access Initiative, is a separate entity. This is absurd – the Clinton Foundation appoints the organisation’s directors, making it a subsidiary in legal terms.

The Foundation is currently under investigation by the FBI over the way it obtained donations while Hillary Clinton was US Secretary of State – the same period in which the New Zealand Government began giving the initiative money.

Taxpayers deserve confidence that aid commitments are made to help the world’s poor, not to win favours with foreign politicians.

Even if aid money was meant to be used for diplomatic purposes, the funding’s justification for no longer holds with Secretary Clinton out of public office. It seems that all taxpayers have to show for our generosity is a stop on her book tour!

The new Government should follow Australia’s lead and cut ties with Hillary Clinton’s potentially corrupt organisations. She is perfectly capable of raising money without handouts from the little New Zealand taxpayer.

--> Click here to sign our petition to end taxpayer funding for the Clinton Foundation. <--

This is the kind of nonsense that our Minister of Foreign Affairs Winston Peters prides himself on exposing and cutting out. He should politely wait until Secretary Clinton leaves the country, then announce an end to the funding.

The documents confirming the funding, released to the Taxpayers’ Union under the Official Information Act, are available below.


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