It’s only taken two and a half years of mismanagement and reckless tax cuts from John Key and co to run the country and the government into a mountain of debt. The questions now: how bad have they let things get, who will they make pay for their mistakes, and how rosy will the forecasts their plans hang on be? Rolling coverage through the day.
*David Cunliffe has laid out the tests for a successful budget:
The budget will be a success if it shows that National has realised it cannot go on as it has: borrowing and splurging on tax cuts for the wealthy, then asking the rest of us to pick up the bill…
..A successful Budget will be one that confronts the fundamental problems of this country’s economy head on, rejects the “borrow and hope” mantra of John Key’s National Government, and protects important public services while asking all Kiwis to contribute their fair share to the cost.
To do so it must pass four crucial tests:
First, it would build a stronger export-oriented economy through investment in skills, innovation and R&D; matched with the necessary monetary reform to bring policy up to date with best practice.
Second, it would invest in savings to help build up a domestic capital base, so that we can own our own future, rather than becoming further indebted to foreign banks. In doing so it would keep the Government’s side of the bargain with the 1.7 million Kiwis who have joined KiwiSaver.
It wouldn’t pretend that selling public assets to tackle Government debt makes any more sense than selling your house for scrap to pay off your mortgage.
Third, it would recognise that our greatest asset is our people and that Kiwis need more jobs with better pay. It would contain a fair tax plan that would close the loopholes that allow too many wealthy New Zealanders to avoid their fair share of tax.
And fourth, it would contain a credible plan for debt reduction that was part of an integrated economic reform plan that left our economy in better not worse shape to innovate, invest, employ, and earn a great living in a competitive modern world.
But we’ll have to wait until 2012, and the first budget of the sixth Labour-led Government, to see a budget like that.
*John Armstrong yesterday praised Labour for returning to a focus on the big economic issues (not that Labour ever stopped talking about them, and not that the ministerial expense scandals weren’t about a big issue – the government’s hypocritical elitism). Today, he devotes a whole column to laughing along with National as it focuses on the smallest of possible stories – a poll that accidentally went up too early on David Cunliffe’s website and was hijacked by righties. I smell a Pulitzer, John.
*The Maori Party is worried about pretty much everything in the Budget. They’ll vote for it though, because they’re gutless scoundrels.
*Campbell Live‘s cost of living series in the last week has been interesting. They had a family of four live on a single full-time average wage, and a person live on the pension. What was interesting was not so much that that it’s hard to get by on so little but that this was a revelation in the eyes of the media. To hundreds of thousands of families it’s called every day life, and it has been getting harder under National.
*Tracy Watkins and Vernon Small write about Key’s strategy. By pushing the hard decisions past the election he is trying to present the public with a deal he thinks we will take: ‘if you want more of my smiling mug, you have to vote for these policies, and if you vote for them, you can’t complain’. And, by leaving everything until later, the unpopularity of the decisions doesn’t crystalise into lost votes as much until after the election by which time Key, if re-elected, will already be planning is 2013 retirement. It’s a hell of a way to run a country.
Watkins/Small also write: The Government will start pushing laws through Parliament under urgency this evening putting the KiwiSaver and Working for Families changes in train – but they will not take effect until next year at the earliest
Why the hell would you need to go into Urgency to pass legislation that won’t even come into effect until after the next Budget? Contempt for democracy is the only explanation.
Update 1: Davide Cunliffe has been doing some great posts on Budget FAQs over at Red Alert. The last two (5 & 6) in particular should be required reading for every budget analyst and commentator.
Budget FAQ #6: Why the Deficit Hole?
Budget FAQs #5: Growth Hockey Stick
Budget FAQs #4: National’s Growth Gap
Budget FAQs #3: Kiwisaver
Budget FAQs #2
Update 2: All much as expected so far, but plans for privatisation are set out in more detail:
What is new is the Government for the first time detailing its plans to raise between $5 billion and $7 billion by partial privatisation of its four state owned energy companies and extending private ownership of Air New Zealand.
Starting next year, the Government wants to sell off stakes in Genesis Energy, Meridian, Mighty River Power and coal company Solid Energy. The exact proportion of private ownership has not been decided but the Government will retain a majority shareholding.
Its plans are to sell shares in the companies through a public offering, with New Zealanders “at the front of the queue”. There is no mention of any foreign ownership restrictions.
Update 3: Families are hit harder than expected:
There were few surprises though the Working for Families cuts reach further down than expected and will hit middle income households as well as those on higher incomes.
The size of public service cuts – $1 billion over three years – was also unexpected. The sweetener for the KiwiSaver cuts is an increase in the employer contribution to 3 per cent, matched by the employee, and a firm date for the resumption of payments to the so-called Cullen Superannuation fund in 2016/2017.
But many families, including middle income families, will be worse off – despite the Government’s earlier suggestion that only high income earners would be targeted by its cuts.
The Government says the cuts are modest – just a few dollars – and will be phased in over 7 years to lessen the pain. But for a middle-income family earning around $70,000-a-year the combined effect of Working for Families cuts, and the requirement to top up their KiwiSaver contributions, will leave them about $20 a week worse off.
$20 a week worse off? That must be about the third or fourth time that ordinary families have had to spend their modest tax cuts. But apparently there is a modest increase for some low income families – so some good news.
Update 4: Gower on the hidden sting in the KiwiSaver cuts:
And there’s a nasty wee surprise – the employer contribution will now be taxed before it gets to you. Sneaky.
You pay more, but get far less bang for your buck. It’s a hammer blow. The biggest hit of the budget.
And summing up:
Is it bold? No. Does it really address the record $16.7 billion deficit? It is a start – tinkering. But the real question is – will it keep John Key’s Government popular? Because that’s the plan.
Update 5: Even the Nats’ fans think it’s weak. Their scorecard:
Audrey Young: 6/10
Bill English’s plan to return the country to surplus sounds good but feels flimsy.
It is based on heroic assumptions of a strong economic economy, high wage growth and and nothing going wrong. …
It will be funded mainly through a combination of revenue raising, through a tax on KiwiSaver contributions and cuts in the public sector of $326 million a year for the next three years, as well as asset sales.
The Government will claim there is no new tax – just an existing tax exemption on employers’ contributions being lifted.
It amounts to a new tax, however, and the Government collecting tax on something it didn’t before.
If this Budget had a deep dark secret, it is that. …
Overall, the Budget rates a 6 out of 10. Its savings targets feel more like wishful thinking than realism and the Government has left the really hard decisions to the public sector itself.
John Armstrong: 6/10
Bill English’s third Budget will stand or fall on one thing and one thing only.
For his and National’s sake, the Treasury had better have got it right this time with its forecasts – that the economy really has stopped contracting and the recovery is finally under way.
If not, the Budget will be thrown back in English’s face come election time.
These are predictions which Gordon Campbell describes as having “the same predictive accuracy as your daily horoscope”. See how well they’ve done recently…