A shoddy, shoddy budget

Written By: - Date published: 8:12 am, May 20th, 2011 - 59 comments
Categories: Economy - Tags:

If we’re talking outcomes then I disagree with Phil Goff – this isn’t the worst budget I’ve ever seen. That prize would have to go to Ruth’s mother of all budgets, or perhaps one of the variety of black budgets we saw under the fourth Labour government. Which is not to say the cuts in this budget are good – just that I’ve seen worse in my time.

There is no doubt however that this is the most poorly constructed budget I have ever seen. It’s amateur hour in so many ways I’m struggling to see how Bill could deliver it without hanging his head in shame. If he was a beneficiary submitting such a poorly thought-out budget to WINZ he’d probably see his benefit stopped.

I have never, for instance, seen a budget in which cash raised from yet-to-be-sold assets was put on the books as if it already existed. They’ve basically bet our health system on being able to flog our assets for an imaginary price.

Nor have I ever seen a New Zealand government make a billion dollars worth of cuts without being able to say what they are cutting. I don’t believe they actually know where these cuts will come from or how sustainable they will be. In fact I don’t think they care. I’d love to see the advice they had on this policy and how much they ignored.

And then there’s this treasury forecast they’ve settled on. The one that predicts billions of dollars of tax more than IRD forecast. If they’ve got that one wrong (and I think it’s very likely they have) then we’re really f**ked.

Such a fast and loose approach might be a little more palatable if it was being done in the name of a real vision for New Zealand’s economy but for all their talk of “ambition” the nats have provided no big ideas at all. It’s like they used up all of their creativity on dodgy accounting and left none for thinking about where they want New Zealand to be in five years time.

This lack of imagination is most obvious in that there’s no interest whatsoever in increasing New Zealand’s earnings. Instead it’s like they’ve decided we’ll pay off the mortgage and get rich by taking the house to pieces and selling the timber.

Of course they don’t really believe this – they know it’s a small elite that will actually gain from this plan. Indeed that’s the point. They just want you to believe otherwise.

59 comments on “A shoddy, shoddy budget”

  1. Peter 1

    Brilliant analysis, you should write Geoff’s speeches. This is what you get when we are lead by a guy who does not need the job.

  2. I agree Irish that the budget is a shocker and down the line is going to create a number of problems.  It is also based on a series of assumptions which like the supposed economic stimulus that they predicted would occur after the tax cuts for the wealthy will not eventuate.  The country will then have a big financial hole to cover.

    The spin has been pretty good.  They talked up the cuts and made it sound like it would be worse than what it was.  Deferring the cuts until after the election was also clever.

    And banking $1b in savings that have not been identified 

    Instead of there being the instant amputation of a limb, there will be the gradual cut, cut, cut of support, services and public service wages and conditions.

    They are hoping that the swinging voter will not realise what is happening, at least until after the election.

    • Oops where did that text go?

      Meant to say

      And banking $1b in savings that have not been identified is the budgetary equivalent of pulling figures out of your arse.

      • Jim Nald 2.1.1

        Oh I get it now after watching that clip (below @ 8:59am) –

        John Key’s unidentified fiscal object is arsterity.

    • Lanthanide 2.2

      My boyfriend pointed out that if they really want to, the government department CEOs could potentially sink the election. A month or two out from the election, sack thousands of nurses and make other big cuts to government departments, and say the budget forces them to.

  3. vto 3

    I really can’t believe how garbled Key’s speech is and how difficult he is to actually understand.

    But he was good at throwing the dogs off the scent. On close up last night he just splurged out stat after stat as a fast curve ball for the couple sitting there.

    Classic politician stuff. You know, slippery and deceptive and selective.

    Zero budget alright. From a zero man.

  4. hellonearthis 4

    Those “billion dollars worth of unnamed cuts” must be so bad that they don’t want to tell the people as it was weaken Nationals chance of reelection. I bet the cuts come from the poorest.
    National Hobbit-in budget imagines new jobs and higher wagers for an enchanted future.

    Anyone worked out the negatives of inflation on the spending in this zero budget.

  5. wtl 5

    Well said. A question who think this budget is ‘reasonable’ given the points made in this post. What would you say if a business was being run like this, promising lots of cuts with not detail on how this is to be achieved, banking future sales of assets without even saying exactly what is to be sold, and relying on extremely optimistic forecasts of growth?

    • vto 5.1

      Exactly. Ask Key how he would manage to sell such a budget to investors. They would laugh him out of the room.

      • Tigger 5.1.1

        I’m going to use this logic with the bank when I ask them for a mortgage based on the fact that next year I will win Lotto.

        • PeteG 5.1.1.1

          You might have more chance if you actually use logic and base your application on you having other assets you intend selling in order to help finance your new purchase.

          • Lanthanide 5.1.1.1.1

            The sale price is between $5b and 7b. That’s a 40% margin of error on the low figure. The tax take is $4b greater than predicted by IRD.
             
            Sounds like wishful thinking/lotto winning to me.

            • Deadly_NZ 5.1.1.1.1.1

              maybe thats it Shonkey and Blinglish send Dr L Smith off to the Lotto shop with $20.00 clutched in his hot little hand.

              • Colonial Viper

                Winning Lotto is no good, it’s still basically funded by low and middle income earners.

    • hellonearthis 5.2

      Rowan Simpson described it like this:
      “Treasury estimates look a lot like your typical pre-launch start-up”
      http://twitter.com/#!/rowansimpson/status/71059392316977153

    • RobC 5.3

      The future sales of assets is easy to answer:

      Current valuations of what’s up for partial sale:

      Mighty River $3.7 bill
      Meridian $6.3 bill
      Solid Energy $1.7 bill
      Genesis $1.6 bill

      $13.3 bill there and add in a bit of Air NZ (mkt capitalisation $1.6 bill) say $14 bill

      Selling 50% = $7 bill, that’s where that comes from; they say $5-7 bill as depending on how they structure the sale it’s unlikely to be at an optimal price.

      Trouble is domestic investor demand could only handle $2 bill a year so it would take a few years at least to flog it all off.

      • Daveo 5.3.1

        I read somewhere that Solid Energy had inflated its value by 100%. I think we should take those valuations with a grain of salt.

        • RobC 5.3.1.1

          Heh. The Crown Ownership Monitoring Unit is a division of …. wait for it …..

          The Treasury 😀 😀

      • wtl 5.3.2

        Another point regarding this is that as far as National is concerned the sale of $7 bn worth of public assets is already a done deal. Let’s make sure the NZ public know this.

      • Alwyn 5.3.3

        Your last paragraph that the public could only handle $2b/yr intrigues me.
        Can you tell me where it comes from?
        There is obviously some limit but I have never seen any reasonable evaluation of what it might be.

        • RobC 5.3.3.1

          From the Treasury advice on mixed ownership … go to the COMU website … but in brief it is based on “initial market soundings”

          I s’pose the bit in there that should be pulled out and shouted from the rooftops is this little gem:

          “Widespread and substantial NZ ownership is achievable, but significant participation by foreign investors will be essential to achieve the Govt’s overall objectives”

          • Draco T Bastard 5.3.3.1.1

            Lovely that Treasury seems to have missed the fact the we already have widespread and substantial NZ ownership.

      • Deadly_NZ 5.3.4

        And a quick sale for 5 billion to a mate, and then we are in the shit.

    • Treetop 5.4

      My summary of the budget is it was a propaganda budget for the reasons you state about forecasts including asset sales.

  6. PeteG 6

    Also vague, but a possible move in an improved direction:

    “The Government is reviewing the tax treatment of employee benefits paid in lieu of salary. Any changes are expected to result in an increase in tax revenues”

    “A Government discussion document will be released on the apportionment rules applying to tax deductions for high-value assets that are also partly used for private purposes. Any changes to those rules could have a positive impact on tax revenue”

    Revenue Minister Peter Dunne indicated a widening of the net, saying the definition of income might be changed, particularly when it came to tax credits which could be claimed under the Working for Families scheme.

    Dunne cited rich people’s leisure assets as being of the greatest interest.

    “There have been instances where high-value assets such as yachts and holiday homes, which are both rented out and used privately, have provided owners with inflated tax deductions, which either result in less taxable rental income or tax losses that can be used to offset other income.

    “Everyone would like to own a holiday home but it should not be subsidised by the taxpayer. We want to make sure the rules are fairer and do not distort investment decisions,” Dunne said.

    Maybe. I wonder if it will depend on whether Dunne gets back in or not.

    • ianmac 6.1

      Pete:”“The Government is reviewing the tax treatment of employee benefits paid in lieu of salary. Any changes are expected to result in an increase in tax revenues”
      Is that a personal tax increase then Pete?

      • PeteG 6.1.1

        You can call it that if you like, but it’s a reduction in tax loopholes and avoidance.

    • Lanthanide 6.2

      Labour will probably look at this area as well.
       
      The problem is, how do you police and enforce it? Such a tax seems like it could only ever go after the top 10-15% of offenders, and everyone else will slip through the woodwork.
       
      Probably better just to go with a land or asset tax instead, much easier to implement, will bring in more money and much harder to dodge.

  7. millsy 7

    The WFF cuts will erode the living standards for a lot of families out there, (and will most likely pull a lot of money out the the school system, in the form of lesser parental contributions). History will probably look back on this as the middle’s 1991 moment.

    If anyone thinks that stripping 1 billion dollars out of the public sector can be done without affecting public services, then I really want to have some of what they are on.

    Services WILL be cut. You can count on it. And it will even affect the rednecks that call for smaller government, as they wait on hold for hours to IRD to sort out a stuff up with taxes that threatens to send their business to the wall.

    I have always thought that National and its supporters only want to tear things down because they dont make a profit, well, this budget doesnt tear them down as much as taking it down piece by piece.

    Welfare reform is conspicuous by its absence. Saving for 2012 methinks?

  8. weka 8

    “Welfare reform is conspicuous by its absence. Saving for 2012 methinks?”

    I’ve been wondering that too.

  9. ianmac 9

    Ya just havta be in the right team. He giveth and he taketh:
    “Finance Minister Bill English confirmed the Crown would reimburse income tax incurred by Rugby New Zealand 2011….. and also by the New Zealand Rugby Union where it was involved.

    Separately, the Crown has agreed to reimburse the union for withholding tax incurred on payments made in relation to the tournament.

    Inland Revenue has clarified that anyone representing overseas unions or official overseas rugby organisations also won’t have to pay tax………
    Visitors not part of official overseas rugby bodies may also be spared the taxman’s pinch……..”
    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10726772

    “Interest.co.nz managing editor Bernard Hickey slammed the Government for giving tax exemptions to rugby organisations when it had just announced it was halving its KiwiSaver member tax credit.”

    • vto 9.1

      yachts.

      rugby.

      movies.

      why so selective?
      are us dots doing normal boring stuff somehow lesser beings?
      are some people more equal than others?

      • ianmac 9.1.1

        If the RWC runs at a loss, which I believe has been flagged, will this give Bill a boost to his economy? And will tax breaks for those involved be +or – to the outcome?

  10. prism 10

    Selling assets is like extinction of a species in that they will never be seen in the same form again. There may be mutations or some look-alikes but they take a long time to develop, and still may die away as they can be ‘wasted’ in a short time.

    Phil O’Reilly, Chief Executive of BusinessNZ, New Zealand’s largest business advocacy group, representing thousands of businesses of all sizes. …Thanks google
    said something about the budget being sophisticated. He no doubt considers his use of the term indicates that he is a sophisticate. I looked up my Collins – choose a meaning to describe him and his ilk: 1.to make (someone) less natural or innocent, as by education. 2.to pervert or corrupt (an argument, etc) by sophistry. 3.to make more complex or refined.

    And sophistry is 1.a. a method of argument that is seemingly plausible though actually invalid and misleading. b.the art of using such arguments. A good description of the work and utterings of our current crop of business leaders and pollies.

  11. I think its a good budget if you want to continue to transfer ownership and income into the pockets of the already rich bludgers living off the backs of workers. Good also because its got most of those workers claiming that the NACTs should be fair. Why should they? They are the party of the bludgers (all bosses, bankers) so its a bludgers budget. First task is to wake up to the nature of capitalism. Its not win win game. Its a zero sum and while they do the sums we get the zeros.

    • Draco T Bastard 11.1

      The economy is always a Zero Sum game. Can’t change that but you can change the distribution which is what Nact have been doing and continue to do – they’re changing the distribution in favour of the rich at the expense of everybody else.

  12. RobC 12

    Ha! Here’s a classic:

    “This is a great Budget. It will get our economy going. This Budget will create 170,000 jobs—170,000 jobs. It is tackling the long-term issues that our economy and our country face.”

    John Key, Budget Speech 2010. Yes, 2010.

    • Pascal's bookie 12.1

      Good catch!

    • Excellent RobC.
       
      And Blinglish said this in his 2010 Budget speech:
       

      These policies underpin the updated Treasury forecasts showing steady growth of around 3 per cent over each of the next four years.
      The forecasts also show that this growth will raise real incomes of the average household by about $7,000 over the next four years, and create 170,000 jobs.

       
      They pulled the same figure out of their arse two years running!!

      • McFlock 12.2.1

        sooner or later it has to be true!

        Well, not under national, admittedly…

  13. I was annoyed by Bill English saying they were borrowing to fund Kiwisaver.

    No…They are borrowing to fund their tax cuts.

    KiwiSaver isn’t on the “nice to have” list….but tax cuts should be…if the govt had any sense. They clearly do not.

    It’s that simple for me.

    The rest is just “sophistication”.

  14. PeteG 14

    One positive outcome of the budget:

    Budget keeps credit ratings secure

    The Government’s top credit ratings were safe after the Budget, with agencies Standard & Poor’s and Moody’s saying it had done enough to keep debt under control.

    Lowered interest rates have helped most people with mortgages (and are omitted from most of the “we’re worse off now” stories). Keeping our credit ratings will help keep interest on government borrowings down, and that will help all who borrow.

    • Pascal's bookie 14.1

      Both agencies kept the country on notice of a downgrade.

      So if the treas. projections don’t came to pass?

      • Roger 14.1.1

        Yes, remembering of course that due to various government reactions to the financial crisis, private debt is taken into account when measuring sovereign debt because it is implied that if a private bank or large finance company goes under the government will bail them out. Therefore private debt ends up being a public liability.

        Now, three questions John Key really needs to be asked.

        How serious is he about keeping our credit rating if he is gutting Kiwisaver and thereby discouraging private saving?

        And bearing that in mind: Why is he really selling part the government’s commercial assets since this sale does not improve or encourage private saving (which helps to reduce the risk of a credit downgrade)?

        If after the sales of these assets, income projections were wrong and the government is still running a deficit, what will they do then, sell the remaining 51%

        • KJT 14.1.1.1

          Of course. That is what they intend longer term anyway.

          They are also making sure the deficit is so huge that there will be no alternative.

          Do we still have the death penalty for traitors?

    • Kevin Welsh 14.2

      This wouldn’t be the same Standard & Poors and Moodys who gave Lehman Brothers an A Credit Rating just days before their meltdown, would it PeteG?

    • Draco T Bastard 14.3

      The government can actually print money – it doesn’t need to borrow and so it’s “credit rating” is pure BS.

      • KJT 14.3.1

        Exactly. AND it is only inflationary if the economy does not have the capacity to absorb it.
        Hard to argue the economy has no spare capacity with the present numbers of unemployed.

        Though it would serve the offshore banks, that have been creaming it by borrowing at near zero interest overseas to lend to us, right, if their profits were inflated away.

  15. Kevin Welsh 15

    “I have never, for instance, seen a budget in which cash raised from yet-to-be-sold assets was put on the books as if it already existed.”

    I suggest you watch “The Smartest Guys In The Room” Irish. This is exactly what Enron did to give their balance sheet the illusion of being in profit.

    “Nor have I ever seen a New Zealand government make a billion dollars worth of cuts without being able to say what they are cutting. I don’t believe they actually know where these cuts will come from or how sustainable they will be. In fact I don’t think they care. I’d love to see the advice they had on this policy and how much they ignored.”

    Just a continuation of the Reaganomics Strategic Deficit they are creating. If you are going to go, go big time.

  16. Irascible 16

    This is budget developed on the floor of a money exchange… driven by the rumour, the speculation and the promise of a return (tomorrow) without substance or rationality…. merely the promise of a quick return to the gambling speculator.
    The long term effects of such speculation are never taken into account by the speculator as he is looking to his immediate hip pocket return.
    This budget is another lost opportunity under yet another National government.

  17. Deadly_NZ 17

    And I see that Labour would not sell assets BUT they have not committed to rolling back all this bullshit. So unless there is a concrete promise to reverse these increases, then one may have to assume that Shonkey is right and the only difference between the 2 parties is the leaders and on that front Labour loses. Maybe it is time for the Greens. They should get a lot more of the labour votes, because voting labour is to vote for the changes to Kiwi Saver and WFF.
    http://www.stuff.co.nz/business/budget-2011/5032522/Budget-plots-remarkable-turnaround-Key

    • Neoleftie 17.1

      Labour bought back Kiwi Rail and other Assets over the years. The history is there in bold and in the streets…Labour is opposed to assets sales and will buy back, where and when able, sold assets but i for one will be in ther streets again and again if and when assets start to get sold off.

  18. Herodotus 18

    Just had a Rd to Damascus moment !!
    I know where these 170k new jobs are !!!!
    All those who have given up and are to emmigrate to Aussie 😉
    Still amazed atthe positiveness being expresed by the bank economists by their sumaries of the budget.
    The only bright light currently are relative low interest rates (I know it is killing the oldies with a few $$) Once the rates start to increase think then what the damage to mums and dads budgets will be.
    Also on an aside I hope the govt when they sell shares will allow all of us interest free loans to purchase. Sure there will no no cash to the govt but the books will appear stronger.

  19. KJT 19

    Of course all these Mum and Pop investors will have the capital sitting in the banks waiting to buy shares in the selloff of SOE’s.

    The only way New Zealanders will have money to buy shares will be to borrow. Probably on the house mortgage.

    • KJT 19.1

      I suppose the motivation for the huge deficit is also so that Labour cannot do much, if they do get re-elected.
      NACT will have a chance to have another go at asset stripping in 4 years time.

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