Surplus challenges

The government is facing challenges, Finance Minister Bill English told the National Party’s Mainland conference at the weekend.

The prospect of economic growth is good but brings with it the challenge of dealing with ongoing surpluses.

The government books scraped into surplus last year but few would have been surprised if they slipped back into deficit given low dairy prices and the various problems facing many of our trading partners.

However, the government is now looking ahead to multi-billion dollar surpluses in the short to medium term which provides the challenge of how best to use that money.

The opposition and the usual other suspects who think the quantity of spending matters more than quality have been calling for increased spending in all sorts of areas. Over at Kiwiblog, David Farrar has calculated that meeting the demands would require a top tax rate of 100%.

But this government has a much better focus than the quantity of spending.As the Finance Minister saidWe measure spending by results rather than the level of spending.

Some issues do require more money now in order to reduce future costs and that is why the government has taken an investment approach to social spending with a whole-of-government approach.

At the conference, Justice Minister Amy Adams spoke about this and explained that getting better results in her portfolio didn’t require more money for it. What was needed was spending that addressed the drivers of crime – welfare dependency and poor education and health.

Few would argue with that, but increased surpluses don’t only give the government the ability to spend more, it also has room to take less.

Last week’s announcement that there won’t be tax cuts in this year’s budget disappointed some, but I think most people accept Prime Minister John Key’s view hat there are other priorities this year.

National had looked at around $1 billion for tax cuts in the Budget the year but it was discarded because it would have delivered $7 or $8 a week to many households, Key told Newstalk ZB.

He said the choice they were faced with in the short term was either a billion dollars worth of tax cuts which would deliver a small amount of money to New Zealanders, or spend the money on other things such as cancer drugs.

Labour was, rightly, pilloried for its chewing gum tax cut and this government wouldn’t get any thanks for offering something similar.

However, people won’t be so patient when there’s a prospect of on-going billion dollar surpluses which give the potential for meaningful cuts and the PM gives room for hope:

“Philosophically we believe in lower taxes and smaller government, and government’s definitely getting smaller,” he said.

“The point is if we’re going to have a tax programme – we’re not ruling that out in for 2017 or campaigning on it for a fourth term. But having probably a bigger one, to be blunt.”

When asked how much was needed for meaningful tax cut, Key responded: “$3 billion I reckon.”

He wouldn’t reveal the budget surplus forecast for next year, but it was nowhere near enough for that.

He said it was realistic to forecast the tax cuts without voters considering it a ploy to be re-elected. 

Tax thresholds would probably change because of the increase in wages, he explained.

“The average income is going up and we think in a few years time the average income will be say $68,000, well the top rate cuts in at $70,000. If you don’t adjust thresholds over time you get to a point where the average income earner is paying the top personal rate of tax. That can’t be right.” . . 

Bracket creep erodes the value of wage rises and needs to be addressed.

Tax cuts  also help retirees. Superannuation is linked to after-tax wages. When taxes drop, after-tax wages increase and so do superannuation payments.

A party conference mid-way through a government’s third term could have been subdued. Confidence that the government will rise to the challenges of growth, continue to focus on the quality of its spending and results helped contribute to a buoyant mood.

It’s far better to be dealing with the challenges of growth than those of recession facing many other countries.

7 Responses to Surplus challenges

  1. Dave Kennedy says:

    The surpluses are almost criminal when underfunding of many services is actually causing real suffering.

    When we have a severe housing shortage, for example the Government isn’t expecting Housing NZ to reinvest rental income back into housing, instead they are expected to pay a $118 million dividend back to the coffers. I listed the underspending in the Christchurch rebuild and special education earlier.

    “Some people would say that if they’re in a garage, they’ve got a roof over your head. But the reality is a garage was built for a car. A caravan was built to have a holiday and a boarding house was built to house people coming out of prison, or drug dependency units etc. So we’ve lost the plot and we’ve got to do something to get back on track,”

    http://www.radionz.co.nz/news/national/303946/auckland-housing-'we've-lost-the-plot

  2. JC says:

    “The surpluses are almost criminal when underfunding of many services is actually causing real suffering.”

    Ah.. the USSR/ East Germany/Romania/Venezuela response.

    Andrew Little has some advice for you on how to handle such stories..

    “soz daily kindness quota all gone. Either lobby the govt for more, or piss off with your compassionate tweets.”

    Or better still, take Bob Jones advice..

    ” Imagine this criminal court scenario. A respected and upright citizen, noted for his calm disposition, is facing double murder charges; his victims; the New Zealand Herald and Dominion Post editors.

    He offers the following defence, namely he’s been away from New Zealand in a remote place for three years with no internet access. On arrival in Auckland he buys a copy of The Herald to read on the Air New Zealand flight to his Wellington home, assuming that’s still permitted by that appalling nannyish airline. Fortunately, I no longer have to suffer it.

    In Wellington, he reads the Dom. Immediately he rebooks back to Auckland. On the way to the airport, he calls into the Dom’s office and murders the editor, then in Auckland he knocks off The Herald editor. A goner, I imagine you’re thinking,but wait, there’s more. For he then submits his justification, namely his uncontrollable rage at returning home to find the same old, day in-day out, wearying infantile hysteria dominating those papers on the bloody Auckland alleged housing crisis. It’s my pick a jury would take no more than three minutes to acquit him, with a rider of gratitude for his public service; this followed by the judge leading a standing ovation for both the jury and the accused.

    Let’s get some facts straight, once and for all on this matter. First, most house dwellers in Auckland are owners. Make no mistake, it’s no crisis in their eyes. Good luck to them for this wealth windfall.

    Prime Minister John Howard summed it up beautifully a dozen years back. He listened patiently while a current affairs television journalist berated him about house prices. “Listen,” he said, when the bore finally finished. “Over the past three decades I’ve been harangued from one end of Australia to the other on every imaginable subject, with one exception. No one yet has complained to me about their home’s rising value.”

    There’s more, but you don’t yet have enough life experience to handle it.

    JC

  3. Fairfacts Media says:

    John Boy and Kiwis have problems many can only dream of.
    I guess National can only take credit for them.
    NZ can only be grateful for the wise stewardship of its economy over the past 8 years or so.
    However, I do believe it is time for tax cuts, to enable the good times to continue.

  4. Dave Kennedy says:

    “No one yet has complained to me about their home’s rising value.”
    Herein lies the heart of the problem. Houses were once considered homes that every New Zealander could aspire to own. Now they are considered a source of capital gain that provide better returns than most other investments. Increasingly fewer people can now afford to live in one and for those living in a car, or on the streets, saving to afford to live in a garage for $300 a week is their dream.

    It’s not the kind of New Zealand that I want to live in when having a warm healthy house to live in is near impossible for 2-3 families out of 10. The places where there is increasing demand for workers are also the places where workers can’t afford to live (Auckland/Queenstown). 10-13 people living in a 3 bedroom house with one bathroom isn’t uncommon.

  5. Dave Kennedy says:

    I agree with FM. Tax cuts for those earning less that a living wage is important and more tax for those whose wealth is largely untaxed. We tax less for those in upper incomes compared to Australia and tax our lower earners far more.

  6. Paranormal says:

    Sigh, more Green agitprop. Shame there’s no substance into it:

    The top 4% of earners provide over 30% of income tax.

  7. Dave Kennedy says:

    “The top 4% of earners provide over 30% of income tax.”

    Paranormal, to get this in perspective, the top 10% of New Zealanders have captured 50% of the country’s wealth and the bottom 50% share only 5% of the nation’s wealth. If taxes were based on income and capacity to pay then the top 4% perhaps should be paying more. Incomes for the bottom 25% have become so low (in relation to living costs) that their living expenses and accommodation has to be subsidised (the cheapest house rentals are over $400 a week in Manukau and take home pay for minimum wages are around $500). Without Working for Families and the Accommodation Supplement, low income families couldn’t survive.

    In 2008 tax revenue was around $44 billion for the year and now it is possibly less than $30 billion (after the previous round of tax cuts to upper earners). The Government has had to borrow $50 billion since then to maintain services and infrastructure.

    If tax was reduced even further for, especially for upper income earners, then the tax take will be reduced further and to maintain the same funding level of services for education and health, we would have to shift to a more user pays one. This would mean that the wealthy would then enjoy a very high standard of care and education and the poor would have no money left to ensure the health and education of their children was anywhere near the same.

    The trickle down theory of reducing tax for upper income earners so that they invest more in their businesses and employment doesn’t work. In our current economy much of the money gained through tax reduction is invested in property for capital gain and, while this increases wealth, it is largely untaxed.

    We were once a fairly egalitarian society and kids born into any household could expect a similar standard of education and health care than anyone else. Do you think we should abandon this idea?

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