Op Ed: John Bishop on Budget 2017
Joyce’s budget soothes path to re-election
In a climate of strong economic growth and continuing surpluses in the government’s account, Steven Joyce has opened his wallet wide and gone on a spending binge. This is an election year budget in which every itch in the electorate has been soothed to the maximum extent possible.
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 Budget 2017, with more modest increases later (although still much larger than previous years).
Stephen 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.
Yes, there is considerable tax relief at the lower and middle levels and more assistance for low and middle income families and that is to be welcomed, even though it is not clear that the full extent of fiscal drag since National came to power has 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.
Perhaps the government has quietly gone a bit soft on one of its ambitions – to pay down debt. On the face of it debt as a percentage of GDP is reducing to 20% of GDP by 2020 and to between 10% and 15% by 2025. Most of that is due to rising surpluses fuelled by economic growth which treasury projects at 3.1% over the next four years.
However, a more detailed look at the budget tables tells a different story. The statement of cashflows for the debt programme shows that net debt increased by $2.787 billion in the 2016 fiscal year. And it will increase again by $3.02 billion in the current year - much less than the $8.3 billion originally projected.
However, repayments in the following four years - 2018 – 2021 – show net repayments of $10.13 billion, but almost half of that is in 2021. If the strong and positive economic outlook change, then the projections of sharply reducing debt in this budget’s out years will fall too.
Certainly, that will make it more difficult for Labour and other opposition parties to make a credible case for even more spending. Joyce’s elections bids are so high that outbidding National and still staying credible that the money can be spent effectively, will be hard.
Joyce denied this was an election bribe, but the fact remains that with all the changes coming in on 1 April 2018, voters who like this package will have to vote for National (or its support parties) in order to get it.
Incidentally Joyce addressing this in the budget lock up said that advice from officials in IRD and related departments was that they needed until April next year, and the changes couldn’t be done before then, such as in October this year.
Will there be changes in tax rates in future? All the budget says on that is the standard bland reassurance that the government “intends to continue to adjust tax and transfer settings as fiscal conditions allow.”
John Bishop is the chair of the New Zealand Taxpayers’ Union