Saturday, December 16, 2017

Frank Newman: Mini-budget delivers on promises


The new government's mini-budget presented to Parliament on 14 December delivered on Labour's promise to reverse the legislated tax cuts that were due to come into effect on 1 April next year. They will instead direct that money into welfare.

The amount of money is significant. Had the tax cuts not been reversed, some $8.4 billion would have been distributed to taxpayers over the next four years by increasing the threshold at which higher marginal tax rates take effect. All taxpayers would have benefited.


Labour campaigned on the premise that we have a child poverty crisis that needs to be addressed, and any relief should go to that cause. The underlying message of the debate was a choice between helping the needy or the greedy - giving to impoverished children or handing money back to those who earned it, and in Labour's view, least need it.

It's an emotive argument that the political left plays upon, which sounds much more convincing than the more numerate arguments put up by the right - an appeal to the heart rather than the head.

It also underlies the philosophical debate about the best approach to assist those who need support - and the balance between government assistance and personal responsibility. The right places greater emphasis on transitioning people from welfare to work. The left gives far greater emphasis to providing more comfort to those who are on welfare. This is the political and social divide in New Zealand today, and the reason Labour has canned the tax cuts.

So where is National's $8.4 billion benefit going to go under the Labour/NZ First/Green proposals? Not surprisingly, the main beneficiaries are the voting constituencies of the new coalition government: low income families, parents with newborns, and superannuitants.
  • Working for Families payments will increase by $1056 a year for children under 16 and $575 for 16-18 years olds.
  • Babies born on or after 1 July 2018 will receive a "Best Start" payment of $60 a week for those not on paid parental leave until the baby turns one. Those earning less than $79k a year will get the bonus until the baby turns three.
  • From 1 July 2018, all 710,000 superannuitants will receive a "Winter Energy Payment" of between $450 (single superannuitants) and $700 (for couples) a year. Although payment is presented as a way for elderly folk to meet rising power costs the money does not need to be spent on heating - it's simply a handout to those aged over 65 regardless of their financial circumstances, and has the scent of political self interest rather than a genuine social need.

The package is expected to benefit around 384,000 families with children by an average of $75 a week. Changes to the accommodation supplement and the Winter Energy payment to superannuitants will see 650,000 households without children benefit by an average of $14 a week.

Part of Labour's reform package is $21.7 billion of new expenditure over the next four years.  That can be only be delivered if the economy remains strong, which seems likely. The day the government delivered its mini budget, Treasury released its half-yearly update. The key points are:
  • The economy is expected to grow at an average of 2.9% a year over the next five years.
  • Wages are expected to rise faster than the rate of inflation, on the back of an increase in the minimum wage.
  • The unemployment rate is forecast to fall to about 4%.
  • Net migration is expected to fall from 70,000 a year to around 15,000 within five years. The main factor is not so much a change in government policy but a recovery of the Australian economy, which will lure Kiwi workers across the Tasman.

On housing, Treasury does not expect the much heralded KiwiBuild programme to have any impact until 2019, and there are doubts that the 100,000 affordable homes in 10 years is achievable given the shortage of workers in the sector.

There are also doubts about how affordable the KiwiBuild homes will be. Building materials costs are rising fast (this week a major building supplies company advised steel costs would rise between 5% and 15% in January) and Treasury indicates labour costs will rise faster than the rate of inflation.

All this points to the higher building costs and higher housing prices at least for the next three years.

Labour campaigned on New Zealand needing a fresh start. I don't think we have that in these policy initiatives. The new government looks to me to be a gathering of young socialists with old socialist ideas. It's about wealth redistribution. While splashing the cash might be good news for the economy in the short-term, increasing public debt and making people more dependant on welfare is not going to make our nation more vibrant and prosperous.


Frank Newman writes a weekly article for Property Plus.

3 comments:

Sam Esler said...

Whats needed is a trip to Greece to see what happens when the taxpayers money is given away. What this pack of idiots are doing is giving a extra $60 dollars a week to some P addict to have ten kids by ten different dads. What should be offered is $1000 to these P addicts to get sterilised,(both sexes) when talking to a social worker about that, his reply was they would be knocking down the door to get the dollars.

KiwiBuzz said...

“The problem with socialism is that you eventually run out of other people's money.” ― Margaret Thatcher

A.G.R. said...

Your last paragraph is 100per-cent accurate, sums up the way socialists think perfectly, with the intention of controlling our lives from cradle to the grave. Until personal responsibility & the return of traditional family values i.e. Mum & Dad responsible for the kids they bring into this world, nothing will change & the situation will worsen, as another generation grows up expecting a free ride through life..