Point of Order: More smoke than flames in new Prime Minister’s bonfire?

 

So was it really a bonfire when incoming Prime Minister Chris Hipkins put a match to several of the Ardern government’s policies?

Certainly his supporters (and some within the media commentariat) hailed the move as being bold, although the ACT party argued that far from setting a bonfire of his own policies, “he has burned a little undergrowth and left a few weeds smoldering for the future”.

Critics were not slow to point out that Hipkins had done nothing to rectify those “achievements” in his own portfolio of falling standards of education and rising truancy in primary schools, not to mention the disaster of the polytechnics merger.

Even now with his avowed focus on “bread-and-butter” issues, the decision to raise the minimum wage rate by the largest aggregate amount since 1997 could push many of its beneficiaries into a higher tax bracket, in effect recycling much of it back to the government’s own coffers.

The adjustment of the minimum wage in April to $22.70 an hour is equivalent to a salary of about $45,000 a year, meaning even those earning the least are approaching the middle tax band.

If thresholds had moved in line with inflation, the current thresholds would be up to $21,259 at 10.5%, $21,260 to $72,890 at 17.5%, $72,891 to $106,298 at 30% and $106,299 to $199,616 at 33%.

A person on the minimum wage who works 41 hours a week will now be taxed at the 30% marginal rate.

If tax brackets were inflation-indexed, then earnings between $48,000 and $73,000 would be taxed at 17.5% instead of 30%.

An average earner on $60,000 would save just over $2000 in tax. Someone earning between $70,000 would save $3258, or 23%.

It’s possible Hipkins will be telling his Finance Minister to include in the coming budget these necessary changes to the tax brackets. But if it is to be an election-winning budget, the government will have to be more generous than that.

Who cares if a huge deficit is bequeathed to the next administration? Every previous outgoing Labour government has done so.

The trouble for the Hipkins team is that the Ardern government has wasted so many millions on projects like the proposed merger of TVNZ and Radio NZ, now off the table, that extra funds have to be found to keep those outfits functioning.

Then there is the irony of the Auckland light rail project, promoted by the Transport Minister Michael Wood, alongside his then boss Jacinda Ardern, on which $70m has so far been spent. While Ardern has jumped ship, Wood has won promotion to a seat on the front bench.

Among Wood’s other distinctions as a minister is a state highway system so degraded it is becoming in places a danger to motorists.

To cap the achievements of this government, a policy-induced recession is looming, and it’s going to be a real pain for many households, some more than others.

Will Hipkins claim the credit for that?

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton.