Budget 2010: Transtasman Tips
Over the next 10 days in the lead up to the Budget Scoop will be publishing links to stories from New Zealand's leading
political and economic subscriber tip-sheet Transtasman. To subscribe to Transtasman go to: http://transtasman.co.nz/home/subscribe
The Govt is insisting its tax package will be fiscally “neutral,” and at the same time, taxpayers will be better off,
even after GST is lifted to 15%. A Sunday Star-Times report at the weekend speculated the new tax levels could be set at
10c, 19c and 33c, without any movement in the thresholds. This would mean someone on $40,000 a year would be $326 a year
better off. Dropping the 38c rate to 33c would cost $500m, 21c to 19c around $780m and 12.5c to 10c, $820m, with total
foregone revenue amounting to $2.1bn.
AXA chief economist Bevan Graham says “we could look back on this year as the dawning of new age of prosperity, if the
risks can be as successfully managed as the financial crisis was.” Govt strategists in the Beehive are not quite as
bullish, but they reckon the Budget will reduce a lot of the uncertainty prevailing at present. Revenue Minister Peter
Dunne has confirmed there will be lower tax rates “across the board.” Finance Minister Bill English talked this week of
closing tax loopholes which allow around 10,000 households reporting investment losses on property and claiming Working
for Families credits.
In the GDP figures for December, the Govt sees some early signs of the shift in the NZ economy it wants. A shift it
believes can be accelerated by tax changes in the budget. Housing and consumption have not taken off as expected before
Christmas, Govt administration has shrunk for the first time since 1999, while the manufacturing and exporting sectors
are looking stronger. The IMF team which has just completed its annual check-up of the NZ economy supports the kind of
tax reform shifting more of the tax burden from income to consumption.
In the budget next month Bill English may have to exercise the skill of a Jeremy Clarkson in driving the economy,
putting his foot on the accelerator to speed up economic re-balancing, stamping on the brake in holding Govt spending.
He’s got to avoid putting it into a tailspin and sliding into the ditch. The Govt is cautiously optimistic about the
impact of higher commodity prices in stimulating the export sector, while savings rates are rising and consumption is
relatively flat.
The Budget is all but locked down, and Finance Minister Bill English concedes he is “happy” with the way major
departments have buckled down to living within the cap of $1.1bn of new spending. It had been a big challenge to turn
around the state sector spending “super-tanker,” but by re-prioritising programmes, and knocking some on the head, many
departments, with a smaller allocation of “new spend” money, will be able to undertake new activities. In the process
the departments have got a better understanding of cost drivers, and can see plenty of potential for getting better
results within baselines.
NZ’s economic recovery remains fragile, despite the commodity export boom (the ANZ says its NZD Commodity Price Index
hit a new record high in April, with ten of the 13 commodities monitored rising during the month). As shown in the
Crown’s financial accounts, corporate tax revenue is well below forecast, reflecting in particular how the small and
medium business sector (at the heart of the NZ economy) is struggling for viability in current trading conditions.
ENDS