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”.