Overall, I'd say Bill English's budget reminds me of Sulla's proscriptions of Rome, a selective sacking of various wealthy targets to refill the Treasury's coffers. Labour couldn't defend the indefensible with the LAQCula scam. And most of the Labour caucus couldn't recognise a thin capitalisation rule change if it sat on their face and farted.
David Cunliffe lists seven talking points over at Red Alert on repudiating the Budget. Let's take them point by point:
Inflation - yeah, I was a bit surprised by the forecasted blip of inflation at 5.9 percent by 2011/12. But seeing as how every other Western country is hoping to inflate their way out of deficit, that's not much chop on attacking the tax cuts. Inflation in three years' time will not concern the Jane and Joe wage slaves come October. Patrick Gower knows which way the wind is blowing.
The tax cuts should give employers a bit of a break from the ever increasing demands for higher wages. Counting inflation, the GST rise and ACC levies, the tax cuts are sizeable enough to compensate and more. Even some diehard Labour supporters will be thinking twice after seeing their adjusted pay-checks come October.
2. Rent rises are a myth. Labour does not realise that the changes outlined by Bill English yesterday are the start of the long slow strangle of LAQCs. I'm certain that the Nats will corrode the investment property business over the span of many budgets. I bet you LAQC ringfencing of tax losses comes in next year. The withdrawal of the property speculators from the housing market should make it easier for first home buyers, as well as relieve a little of the pressure on state housing.
The transition is not as fast as some might wish, but National still have work to do cleaning out the Aegean stables of the commercial investment sector. It's one thing to discourage the landlord addiction, but where else should NZ investors put their savings? The Securities Commission and the NZX are cases in point. Commerce Minister Simon Power is probably working weekends and religious holidays trying to suss this all out.
I think this is where the SOE stocktake might come in as well. I really don't want to go off on an SOE tangent right now though. Later. Suffice to say that the Nats won't be relying on Telecom to anchor the NZ stockmarket.
Oh bugger Cunliffe. Who gives a damn about ECE or the indiscernible decrease in government services? As far as "passive instruments" go, tax cuts are pretty bloody stimulatory. Likewise to all the left wing bloggers going on about the NZ wage earner on 2 million dollars a year getting blahblahblah dollars out of it. That is the way numbers work. What do you expect? People on under 10 grand a year should be getting thousand dollar tax cuts a week?
There are many reasons why this could be described as a Good Not Great Budget, and Labour ignored all of them. For one, there's National's complete avoidance on the Great Grey Gorilla in the room, Superannuation. Indeed, the Nats are still in complete denial. Their PR golden goose, the What's In It For Me Calculator, shows no practical benefit to any beneficiaries except the retired gentry. No sign of off-peak Waiheke ferry cuts, no sign of means testing for the needy not greedy.
Woohoo, sez the Nats. Research & Development funding increased by $321 million over four years. However, that's less than the extra money going into prisons:
$337.4 million to lift prison capacity and manage justice sector pressures.
It's unclear whether this prison spending is for one year or what. I was surprised enough to find prisons listed under infrastructure, let alone see the comparative increase alongside other areas. For example, mental health gets a whopping $40 million, ten percent of the prison budget increase. There are also other minor gems, such as the faith-based government spending pointed out by Russell Brown that raises a few eyebrows.
Other observations? One point worth noting is the five point difference between the new company tax rate of 28 cents compared with the highest income tax rate of 33 cents. Yeah, both dropped, and at least the PIE rates are aligned to the 33 cent line. Perhaps the trade-off between competing with Australia was more worthwhile than the NZ alignment of maximum rates, which might be a fair point.
Education got a fair suck of the sav, but the focus was primary and secondary schooling rather than ECE or tertiary. I reckon Steven Joyce is still devising a cunning plan for the tertiary sector in time for next year's budget and the election.
On the whole, the budget is a fairly safe gamble, with a hedge twist. It's lost it in the RSS ether, but I read how John Key sez that another recession is inevitable, and he's bang on there. The frankly massive imbalances in the global economy have been plastered over, not fixed. The Nats have borrowed a bit for stim, but not too much. Inflation and higher interest rates lie in wait up ahead. It pays to retain some flexibility.