Budget Roundup
First the Herald:
A tax cut law is expected to pass through Parliament today under urgency – with the support of National. …
Dr Cullen delivered a fiscally tight Budget with a cash deficit of $3.5 billion and forecasts of similar amounts over the next four years, making it difficult for National to say “me too” to Labour’s policies.
It is likely to be squeezed into identifying existing policies it would cut or borrow more.
Mr Key said National would “reprioritise”, and acknowledged it would need to spell out in an alternative Budget before the election which of Labour’s policies it would scrap.
“It’s not a question of whether spending is ‘nice’. Most Government expenditure is ‘nice’,” Mr Key said.
“There are certain times when it becomes luxury, and we think that at a time when New Zealanders are struggling, the number one priority is to put money in the pockets of hard-working New Zealanders and we are prepared to prioritise that over other initiatives.”
Mr Key said National would probably wait until the start of the election campaign before unveiling its own economic package.
Simon Collins looks at the numbers:
In dollar terms, the tax cuts get bigger as your income rises – from $22 a week at $20,000 a year to $32 a week at around $50,000 and a maximum cut of $55 a week at $80,000 by 2011.
But in percentage terms, the biggest cuts are at the bottom – 5.7 per cent at $20,000, 3.3 per cent at $50,000 and 3.6 per cent at $80,000.
I agree it is the percentage changes which are most important. Tax cuts will always deliver more to those who pay more tax in absolute terms. The irony is that the left have spent 15 years attacking that concept and arguing that tax cuts favour the rich as they always get more tax back from them.
John Armstrong sees the budget as giving Labour breathing space:
The last waltz on the Titanic? Michael Cullen’s ninth, probably final and most political Budget yet will not on its own save Labour’s neck.
But then it was not expected to do so. Labour has simply arrived at the tax cut party too late – and probably with too little. But the Budget will have done its job if it keeps Labour in contention until the start of the election campaign, when the real business begins.
By his own admission, Cullen has reached the limits of his “comfort zone”. He has risked sacrificing his longstanding reputation for fiscal rectitude in order to get a short-term political payoff. The net result is someone on the average wage of $45,000 gets an extra $16 a week from October. Hardly a sum to provoke mass rejoicing in the streets.
Brian Fallow notes the empty piggy bank:
Michael Cullen has emptied the piggy-bank in a bid to mitigate the severity of the economic slowdown.
After running Budget surpluses in the range of 3 to 6 per cent of gross domestic product during the good times of the past six years, he has now slashed them to well under 1 per cent over the next four years.
He has in fact cut them so much he needs to borrow money to put into his Cullen Fund. Anyone else doing that would be howled down. It is indeed a “poison pill” budget like in 1990 designed to force the next Government to run a deficit or cut spending.
Vernon Small labels the budget brave and possibly reckless:
That is one brave - as in almost reckless - Budget. …
The plan is to leave precious little room for National to move unless it wants to admit to specific service cuts or borrow-up large. I find it hard to believe that, back in Government, Labour would be able to stick to that spending track, given $750 million a year is already earmarked for health and there are other big wage bills in the public sector.
Even if Labour wins, this will be Cullen’s last budget. His successor will find this an absolute hospital pass, with basically no major new initiatives possible for half a decade.
The Press labels it not a winner:
The cuts are the first that Cullen has made as Minister of Finance despite the fact that the country has run large Budget surpluses for more than four years. They do not begin to come into effect until October this year. Many critics look enviously across the Tasman and see an economy similar to New Zealand’s in many respects, where income-earners have just had a Budget that has given them tax cuts for the fifth year in succession. Many will say the cuts now are too little and too late.
This Budget is not an obvious election winner. But now that Cullen has finally laid his tax-relief cards on the table, the onus is sharply on the National leader, John Key, to spell out what he will do if he is elected to office. Now, or very soon, Key must state clearly not only the size of any tax cuts he will make but also, and most crucially, how they will be paid for. Empty points-scoring in this debate is no longer enough.
As with previous elections, National has said they will present a fully costed budget making clear what spending they will or will not commit to.
The Dom Post is similar:
Finance Minister Michael Cullen has screwed up his courage, abandoned the prejudices of a political lifetime and pushed all his chips into the middle, The Dominion Post writes.
The tax cuts unveiled in yesterday’s Budget represent a desperate last-ditch bid by Labour to recapture voters’ attention. They go against almost everything Dr Cullen has preached in his eight-and-a-half years in charge of the country’s finances.
To fund the $10.6 billion cost of the threshold changes over the next four years he is dramatically reducing the size of the buffer he has previously maintained between government expenses and revenue, increasing debt and reducing the provision for new spending in future Budgets by $250 million a year to $1.75 billion.
Yep, all stuff which Dr Cullen has attacked in the past.
And the NZ Herald:
The revenue he has harvested from rising incomes has been a major contributor to the surpluses that will drop now to a level designed to leave little to spare for the party in power next year. The cash balance will be in deficit after the required $2 billion contribution to the pension fund.
Again Dr Cullen will be borrowing money to invest it in the Cullen Fund. And this will remain the case until 2016!
Dr Cullen can point to nine consecutive years of growth, a record no other Finance Minister has enjoyed in his lifetime, but he would be hard pressed to explain how excess taxation contributed to it.
The money rightly belonged to the overtaxed all along. If they are less than grateful for relief that will come just weeks before the likely election date, they can be forgiven. Dr Cullen says Budgets can lose elections but not win them. The best this one can do for his Government is no further harm.
Fran O’Sullivan looks at borrowing:
Gross debt will expand in nominal terms. But as a percentage of GDP it will still trend around 20 per cent, if GDP grows at the 1.5 per cent rate Treasury has forecast for 2008-09. This could be a very big “if” indeed if the international economic climate gets worse.
Clearly if the boot had been on the other foot, Cullen would have been railing against the imprudent, irresponsible behaviour of a National government intent on bribing voters with their own money to win an election.
Exactly
Whichever party forms a government after this year’s election, it will still be faced with the likely need to reprioritise spending or take on more debt to underpin the tax-cutting programme – at least in the short term, until the dynamic effects of personal tax cuts kick into gear and push the cycle up again.
There will be spending cuts regardless of who is in office. The only difference is Labour calls them “reprioritisation”.
May 23rd, 2008 at 8:14 am
In a company this behaviour I’m sure would be termed reckless expenditure, and would be accountable. In my view shareholders dividends are being diverted to Charitable purposes.
Is’nt there pending legislation for reckless behaviour or something like that for dicey financial advisers or such like?
May 23rd, 2008 at 8:15 am
I think that Dr Cullen will be seen as having caused the fiscal blow-out, and so long as the first English budget isn’t a replay of Ruthenasia National will escape opprobium, except amongst the people-who-are-not-employed-to-blog-but-only-blog-from-their-offices-in-government-offices, and as they will be out of a job they won’t have much to say.
May 23rd, 2008 at 8:18 am
Mikhael has done his best. On the eve of an upcoming nasty few years, in the face of evidence that an inflationary budget will keep Ma and Pa Middle New Zealands mortgage rate higher for longer, Mikhael and Hulun toss the curs a few scraps and hope it quashes their hunger for change.
The disengenuous part is to claim that those most in need will be helped the most; those in need the most will be hurting more than they receive back through higher percentage costs incurred via GST, fuel tax, food price rises, rates increases, electricity price rises, schooling fee increases, mortgage rate rises (as fixed term deals roll over to new, higher rates) etc.
The most in need are typically one income, two or three kids, large mortgage, shit old house with no insulation and they’re getting tossed a few bucks in tax back plus working for families. Just give them their money back in zero tax for the first Xk if you earn less than Y , factored by regional and and have child/ren cost adjusters and make mortgage interest of some proportion deductible against income (its good enough for LAQC’s run by MP’s). Perhaps make home insulation a tax deductible expense – radical.
Whats bitter is Mikhael and Huluns last ditch attempt to leave a no win legacy for the next government at the expense of the New Zealand public; as long as they look good its all right mate.
May 23rd, 2008 at 8:22 am
This is a scorched earth strategy ordered from the Helenbunker.
May 23rd, 2008 at 8:34 am
As we say in Texas Hold’em the Labour party is short stacked and Cullen has gone all in on a bluff. The only problem for Cullen is the other players at the table know this and will call him out.
May 23rd, 2008 at 8:38 am
A great salesman once told me “people buy people”.
No-one is buying Mikhael, the punters think he’s a c@nt.
Politics gets real simple sometimes.
May 23rd, 2008 at 8:41 am
Burn it, burn all Michael.
Yes leader.
May 23rd, 2008 at 8:44 am
Sorry, but Philip John said yesterday that the “budjet” looks to be sensible and pragmatic. and intimated that this was all caused by the National Party. You’ll just have to tell all those analysts and journalists that they are wrong and he is right.
I just do not understand why Michael Cullen would place New Zealand in this position. Surely screwing over his opposition, who will now be even more likely to take over as the next government, is not in the best interest of New Zealand? Don’t these people have families and friends who will have to deal with the fallout of this type of bullshit?
And why in the hell is National supporting this?
May 23rd, 2008 at 8:53 am
I can see it know, Hulun brooding, gaunt and staring into the fire but focusing 10 years ago.
Mikhael, rubbing hands, attentive and rheumy eyed.
May 23rd, 2008 at 9:06 am
NZ Herald Simon Collins: “In dollar terms, the tax cuts get bigger as your income rises”
What a genius. Give the man a Qantas Award. Someone staple his lips to his desk and tell him “in dollar terms, the amount of tax paid gets bigger as your income rises, and in real dollar terms people with bigger incomes are paying more marginal tax then they are getting back in cuts”.
idiot.
May 23rd, 2008 at 9:20 am
“Michael Cullen has emptied the piggy-bank in a bid to mitigate the severity of the economic slowdown”
No, he’s trying to buy an election under orders from above. I bet his bottom’s so tight right now, he won’t do a no2 for weeks.
May 23rd, 2008 at 9:23 am
I find it astonishing that all of these ‘learned’ commentators have bought the spin, and have all overlooked what should be obvious even to Blind Freddie.
Michael Cullen has not delivered tax cuts. In real terms, we are all still paying more after this Budget than we were when Labour came to office nine years ago.
In other words, he hasn’t delivered tax cuts, he’s delivered inflation adjustments — and even then the adjustments aren’t sufficient to make up for the backlog that we’re owed. That’s how he can afford all the pork.
May 23rd, 2008 at 9:58 am
Yeah thats right. Last year’s budget was bold. I heard Barry Soper say it was bold and in the Dom Post it was bold. Then I read Cullen Budget speech and he had described his budget as bold. Media tools.
Same thing happening this time with the so called tax cuts.
May 23rd, 2008 at 10:03 am
I think John Key’s decisions on what Labour frivolities to scrap might be independently assisted by the ANZ’s analysis of Government spending which I for one cannot wait to see!
May 23rd, 2008 at 10:10 am
aye – what Peter Cresswell said
May 23rd, 2008 at 10:24 am
Buggerlugs – right with you on that one. If the ANZ report is as hard hitting as predicted then a superior tax cut package can be justified by spending cuts without incurring political wrath. Regardless, drastic action is required to retain a work force that can support the economy in its present state. Key will need to present a vision for the future that will dissuade critical workers and big employers from moving out of NZ. Turning the tide is a big job and the Nats have never had to be that radical in the past. Labour are rightly described as cynical c..ts and I hate them for the damage they have done to this country.
May 23rd, 2008 at 11:01 am
I’m looking forward to the ANZ report.
Cameron Bagrie is a forthrite character who calls a spade a spade. He will even tell it as is. He may even use the “r” word to describe NZ’s current economic state.
May 23rd, 2008 at 11:24 am
Clark claims that the timing of the first round of tax cuts (October 2008 rather than April 2009) is because NZ’ers are hurting now so they can’t wait until next year for relief.
So why not implement the changes as of July 1 this year then?
Come on Helen, you’re fooling nobody. You want people to still be feeling good about the extra money in the wage packets when they go to the polls.
Wouldn’t it be nice of we could find politicians that were actually more interested in doing the job they were elected to do (prudently and effectively manage the country) than simply concentrating on retaining or getting a grip on power — and that goes for both ends of the political spectrum.
It’s sad really.
May 23rd, 2008 at 11:33 am
Sad aardvark, but typical of Labour.
May 23rd, 2008 at 12:17 pm
Just about spewed after reading Trotters crap in the local paper this morning. Trotter was crying crocodile tears cause poor old Sullen got a bums rap when he gave his pre budget speech to the Canterbury manufurers association.Trotts was saying why would anyone want to talk to the CMA, they are after all just “rich pricks”, why didn’t Sullen talk to the factory workers, shop assistants, nures, teachers social workers ra ra etc, atleast these people would have cheer and clap for the poor old bastard. Where do the find these fucktards? If it wasn’t for croups like the CMA that produce the wealth in this country these people wouldn’t have a job. Trotts should look at the message and not the messenger.
I say fuck the tax cuts, the pricks in power have gone way pass tax cuts, they are quite simply bad bastards and they have to GO!!!!!!!!!!!!!!!
May 23rd, 2008 at 1:41 pm
Did Trotter mention the irony of Cullen touring a factory in Chch which is about to move to China?