Mini-budget delivers on promises

The new governments’ mini-budget presented to Parliament on 14 December delivered on Labour’s promise to reverse the legislated tax cuts that were to come into effect on 1 April next year, and instead direct that money into welfare.

The amount of money is significant. Had the tax cuts not been reverse, some $8.4 billion would have been distributed to taxpayers by increasing the threshold at which higher marginal tax rates take effect. All taxpayers would have benefited. Labour took the view that higher income earners should not benefit, and campaigned on the view that we have a child poverty crisis that needs to be addressed, and any benefit should go towards achieving that goal.

It underlies a more philosophical debate about the best approach to assisting those who need support, and the balance between government assistance and personal responsibility. The right place greater emphasis on transitioning people from welfare to work so that they can become fully independent of state support. The left give greater emphasis on providing more comfort to those who are on welfare.

This is essentially the political and social divide in New Zealand today, and the reason Laboured 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. It is estimated the some 65,000 newborns will qualify a year.

• From 1 July 2018, 710,000 superannuitants will receive a “Winter Energy Payment” of between $450 (single superannuitants) and $700 (for couples) a year. All superannuitant will benefit, regardless of income. 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.

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 will benefit by an average of $14 a week.

Part of Labour’s reform package is $21.7b of new expenditure over the next four years. That can be only be delivered if the economy remains strong, as is 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% are year over the next five years.

• Wages are expected to rise faster than the rate of inflation, on the back up 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 now to around 15,000 within five years. The main factor is not so much a change in government policy but a recovery in the Australian economy and the lure of job prospects on the other side of 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 labour 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 the higher labour costs projected by Treasury points to significantly higher building costs in the future. All this points to the higher building costs and higher housing prices at least for the next three years.

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