Friday, May 20, 2005

Budget thoughts


That's the at-first-glance description of today's budget. Another would be "uninspiring" - and in an election year, the government should have been looking to do something a little more impressive. Instead, we have a few moderate rises for some programmes, coupled with expanded eligibility for others, all with a good couple of years lead-time to give people time to adapt (or alternatively, the government time to cancel or defer). Plus an utterly insignificant change in tax brackets. Woo hoo.

The tax change (adjusting tax brackets for inflation every three years from 2008) represents a lost opportunity - not to cripple the budget with huge tax cuts, but to undermine tax as an election issue. Bracket changes are relatively cheap compared to cuts in tax rates and are widely (and correctly, IMHO) seen as being fair; implementing them ASAP would have been a cheap and easy way of robbing National and ACT of a talking point without significantly undermining Labour's key contention that large-scale tax cuts are unaffordable without cuts in services. Instead, by delaying them, the government has provided yet another rod for their own back.

The "KiwiSaver" savings scheme is designed to help people save for retirement or home ownership, and is pretty much borrowed wholesale from the New Zealand Institute. The plan I think though is to start encouraging employers to match employee contributions - though this will probably be done through the market (by having government departments do it and relying on competition for employees to get other employers to follow suit) rather than legislation. The home-deposit scheme - basically a free $5000 if you save for five years - is a solid, social democratic programme, aimed at promoting greater equality and helping people achieve the kiwi dream of owning their own home. Unlike the suggested tertiary savings scheme, the government contribution is not linked to the amount saved, so it does not advantage the wealthy more than the poor (except insofar as the former can afford to save 4% of their income while the latter cannot). It is however means-tested, rather than being universal - though probably more accessible than assistance from the Working for Families package. Overall, its good - though hardly anything to stir the blood.

Most of the media coverage has focussed on the above two policies, giving the impression of a fiscally conservative, sensible, boring budget. Overlooked has been a far more impressive package: a billion dollars a year extra for health. Now that's inspiring.


Hey they are not distorting democracy by taking advantage of NZders short term focus.
you seem to have said "they should have bribed us.." hmmmm

Posted by Genius : 5/20/2005 06:57:00 AM

Not quite. I think they should have used the budget to give a greater sense of where they wanted to go. I know Cullen equates "vision" with "madness", but you need at least a little of it in politics. And it is one of the areas where this government falls down.

And as a general comment, while people are rightly cynical about pre-election spendups, they're also strangely disappointed when there isn't one.

Posted by Idiot/Savant : 5/20/2005 08:06:00 AM

I remember the Bad Old Days of people stocking up on cigarettes and booze the day of a budget in case they suddenly cost more the next day.

I remember Roger Douglas's economic blitzkreig.

And I remember my student days of having fees and allowances appear, disappear and radically increase or decrease their scope by govt whim. It was impossible to make a rational choice about whether the costs of a course were worth it (or affordable!) because you'd no idea what your tertiary funding would be like by the time you were finishing your degree.

Foreshadowing the govts moves several years in advance is a good thing for everyone. It's also a ballsy move: govts often try to move hastily because they fear that otherwise some other govt will reverse their changes before they can really take effect.

Posted by Icehawk : 5/20/2005 11:16:00 AM

Slightly off topic, but an interesting contribution to things economic is this Reason interview with the author of "The Company of Strangers: A Natural History of Economic Life" -

Posted by Sock Thief : 5/20/2005 03:55:00 PM

I think their scheme has several good points:
- delaying the onset of the scheme means that hopefully a lot of people will wait and buy a house rather than buy one now that they can't afford using 100% mortgages and the like.
- limiting this to houses in the lowest price quartile should limit any inflationary risk of putting public money into the housing market

I think it would have been even better if they'd introduced a tax on house sales in the highest price quartile, further deflating the housing market and making the scheme partly self-funding

Posted by Rich : 5/21/2005 09:35:00 AM