Business as usual with surprises

May 22, 2015

The Budget which was expected to be boring was a business as usual one with surprises.

The business as usual bit is continuing focus on the careful management of public money and getting back to surplus without the slash and burn approach which past governments took.

The big surprise was an increase in benefits, above the normal adjustment for inflation, for the first time in more than 40 years.

Even the opposition was struggling to oppose that and balancing the increase is the requirement for sole parents to seek work once their youngest child is three and increased work obligations for those on job seeker benefits helps.

Dene Mackenzie says Bill English has pulled off a master stroke:

He pushed his political opponents off stride by announcing social spending better than anything Labour did during its most recent nine years in Government.

Mr English will continue to be criticised by opponents for not delivering his prized surplus this year, but spending $790 million on a package to help children in some of New Zealand’s poorest families was a touch of genius.

The package included more child-care support for low-income families, a $25-a-week increase in benefit rates for families with children, an increase in Working for Families payments to low-income families not on a benefit, and increased work obligations for sole parents on a benefit.

”This package strikes a balance that offers more support to low-income families with children while ensuring there remains a strong incentive for parents to move from welfare to work,” he said.

He also made it difficult for his political opponents to make any meaningful criticism by lifting benefit rates by more than inflation for the first time since 1972.

The Finance Minister has always been the social conscience of National, right from the days when he was a member of the party’s ”brat pack”.

At political conferences more than 20 years ago, he talked about ensuring a ”truck driver” from Balclutha could earn enough to feed and house his family. . .

The increase to Working for Families at the lower end of income ensures the truck driver and any other parents in paid work will be better off than those on benefits.

I don’t support WFF for families earning well above the average income but can’t think of a better way to ensure there’s a decent gap between income from benefits and low paid jobs.

The Budget at a glance is here.

I was listening to talkback on my way home from Christchurch last night. The cut in the $1000 kickstart for Kiwisaver wasn’t popular but it was less likely to go to those who’d need it most and tax credits and employer contributions remain.

Border security and the risk of biosecurity breeches is of increasing concern with more travellers. Requiring $6 from departing travellers and $16 from incoming ones is a little bit of user-pays.

The Finance Minister’s speech is here.

. . . New Zealand remains one of the faster-growing developed economies, with conditions supporting sustained solid growth, forecast at 2.8 per cent on average over the next four years.

Growth matters. It means more jobs, higher incomes and opportunities for families to get ahead.

By mid-2019, the number of people in work is expected to rise by another 150,000 and the unemployment rate to drop to 4.5 per cent. The average wage is also expected to rise by $7,000 to $63,000 a year.

New Zealand’s positive economic performance, relative to others, is demonstrated by the strength of the New Zealand dollar and the very low number of people leaving for Australia – the lowest, in net terms, since 1992.

Lower dairy prices are a headwind for growth, however, and global uncertainties remain. Monetary policy easing in other countries is helping to keep upward pressure on the exchange rate.

Unusually, given our current growth, New Zealand is experiencing very low inflation.

Annual CPI inflation is only 0.1 per cent, compared to the Budget 2014 forecast of 1.8 per cent.

This is good news for consumers and workers because their income goes a bit further and they get good value for any pay rises.

Low inflation is also keeping down interest rates. The concerns I expressed in last year’s Budget about rising interest rates have largely disappeared.

But lower-than-expected prices also mean that nominal GDP – the size of the economy in dollar terms – is not rising as quickly as previously expected, despite solid growth in the real economy.

This means tax revenue is not rising as quickly either.

Compared to what was forecast in last year’s Budget, nominal GDP is expected to be $15 billion lower in total over this year and the next three years, and tax revenue to be $4.5 billion lower in total over the same period. . .

Government’s fiscal priorities are:

Returning to surplus this year and maintaining surpluses in the future

Reducing net debt to 20 per cent of GDP by 2020, including repaying debt in dollar terms in 2017/18

Further reducing ACC levies

Beginning to reduce income taxes from 2017, and

Using any further fiscal headroom to reduce debt faster.

The Government is making good progress on all these fiscal priorities.

While expenditure is firmly under control, tax revenue – as I mentioned – is not rising as quickly as expected.

This is lowering operating balances across the forecast period, compared to Budget 2014 predictions.

But the overall trajectory has not changed. We have come from an $18.4 billion deficit four years ago to seeing steadily rising surpluses into the future.

A deficit of $684 million is now forecast for 2014/15, which is $2.2 billion better than last year’s deficit.

A surplus of $176 million is expected in 2015/16, followed by $1.5 billion in 2016/17 and rising to $3.6 billion in 2018/19.

As I’ve said previously, the Government has no intention of making spending cuts simply to chase a surplus in a particular year.

The surplus target has been successful in applying greater discipline to government spending.

That discipline has turned the Government’s books around, and the fiscal outlook remains very positive. . .

The government can, and should, control its spending and the disciplined approach to it that has been taken since National came to power in 2008 is the major reason New Zealand is doing as well as it is.

The government can influence the environment which helps the income side, but sustainable growth comes from the private sector.


Bank, govt aim at demand, what about supply?

May 18, 2015

The Reserve Bank and the government are both trying to take the heat out of the Auckland housing market.

The Bank announced proposed changes to the loan-to-value ratio (LVR) policy to take effect from 1 Octobere:

They will:

  • Require residential property investors in the Auckland Council area using bank loans to have a deposit of at least 30 percent.
  • Increase the existing speed limit for high LVR borrowing outside of Auckland from 10 to 15 percent, to reflect the more subdued housing market conditions outside of Auckland.
  • Retain the existing 10 percent speed limit for loans to owner-occupiers in Auckland at LVRs of greater than 80 percent.

The government is  taking extra steps to bolster the tax rules on property transaction.

FInance Minister Bill English and Revenue Minister Todd McLay say the Government is taking extra steps to bolster the tax rules on property transactions – including those by overseas buyers – and to help Inland Revenue enforce them.

The tax measures are also expected to take some of the heat out of Auckland’s housing market and sit alongside the Reserve Bank’s latest moves to address associated financial stability issues, Mr English says.

“Taken together, they will help Inland Revenue enforce existing tax rules, provide it with extra resources and ensure that property investors pay their fair share of tax – whether they’re from New Zealand or overseas.”

The Budget this week will confirm that, from 1 October this year, the following will be required when any property is bought or sold:

  • All non-residents and New Zealanders buying and selling any property other than their main home must provide a New Zealand IRD number as part of the usual land transfer process with Land Information New Zealand.
  • In addition, all non-resident buyers and sellers must provide their tax identification number from their home country, along with current identification requirements such as a passport.
  • And to ensure that our full anti-money laundering rules apply to non-residents before they buy a property, non-residents must have a New Zealand bank account before they can get a New Zealand IRD number.
  • In addition, a new “bright line” test will be introduced for non-residents and New Zealanders buying residential property, to supplement Inland Revenue’s current “intentions” test. Under this new test, gains from residential property sold within two years of purchase will be taxed, unless the property is the seller’s main home, inherited from a deceased estate or transferred as part of a relationship property settlement.

“Tax rules are complex and affect people in different ways, so we will consult on these measures before they take effect on 1 October,” Mr English says.

The “bright line” test will then apply to properties bought on or after 1 October.

To further ensure overseas property buyers meet both existing tax requirements and those of the new test, the Government will investigate introducing a withholding tax for non-residents selling residential property.

Officials will consult on these details with a view to this withholding tax being introduced around the middle of 2016.

Mr English reiterated owner-occupiers of residential property will not be affected by the new measures when they sell their main home, or if property is inherited from a deceased estate or transferred as part of a relationship property settlement.

“It’s important to reiterate that these changes will not apply to New Zealanders’ main home, although existing tax rules will still apply in  addition to these new measures,” Mr English says.

“It’s equally important that people buying residential property for gains meet their tax obligations, whether they are from New Zealand or overseas.

“The combination of collecting IRD numbers and introducing this new bright-line test will help ensure that non-residents pay their fair share of tax in New Zealand.” . . .

New Zealand National Party's photo.

These measures should go someway to dampening the demand side of the pressure on Auckland property prices.

More needs to be done to increase the supply of houses.

This could be done by building more houses and by people moving from Auckland to other areas.

Immigration Minister Michael Woodhouse is considering incetivising immigrants to settle in the regions:

The Government is set to give skilled migrants, investors and those planning to bring businesses to New Zealand extra points if they settle outside of Auckland.

Skilled migrants and those applying to live in New Zealand under entrepreneur visas already gain 10 points in the immigration points system if they say they intend to settle outside of Auckland. That could soon get a boost.

“Those entrepreneurs, those innovators who could make a contribution to regional development, it is possible for us to bump up the points settings to incentivise that,” says Mr Woodhouse. . .

 It’s not just immigrants who could make a contribution to regional development.

If some of those bemoaning property prices in their home city opened their eyes to opportunities outside Auckland they could move out of Auckland.

They would get a house for much less than they could hope to pay in the city, find how much easier life is when there are fewer people clogging the roads and in improving their lives would free up houses in Auckland for those who can’t or won’t move.


Sobering stats

May 8, 2015

Finance Minister Bill English gave some very sobering statistics during question time yesterday:

Of course, the Government is focused not just on savings this year; we are focusing on intergenerational savings. If we resolve problems in complicated families and struggling communities, then we will be spending less in the long run. For example, 1 percent of the children born in 1990 had contact with Child, Youth and Family before the age of 5. They had parents who were in contact with the corrections system and had been in households supported by benefits for most of their lives. Thirty-six percent of people with these three factors will be on a benefit at age 35. So you know that pretty much from when they are born, compared with 9 percent of the general population. Almost 5 percent of this group will be in prison at the age of 35. Some of these individuals will cost around $1 million each, just in corrections, Child, Youth and Family, and income support costs , and that represents significant misery in families and communities. We will continue to change things in order to change their lives.

This is why the government has taken an investment approach to welfare – spending more in the short term to help people off benefits and into work which will improve their lives, those of their children and pay social and financial dividends in the medium and long term.

Unemployment is still too high at 5.8 %, but the employment rate has reached an all-time high of 69.6%.

. . . “This is the greatest share of New Zealanders we have ever seen in the labour force. The largest increase came from 20 to 34-year-olds, who accounted for nearly half this year’s increase,” labour market and households statistics manager Diane Ramsay said.

Over the year to the latest quarter, the number of people employed increased 74,000 (3.2 percent) while the number of people unemployed fell 1,000 (0.6 percent), as measured by the Household Labour Force Survey. . .

That’s the fourth highest in the OECD.
New Zealand National Party's photo.


Quote of the day

May 8, 2015

. . . But it brings me back to the heart of this issue, which is that Labour always wants to spend more, regardless of whether it works and regardless of whether it changes anything, and it cannot stand it when it thinks someone may be being careful with the spending. . . 

The great thing is we have a country where there are thousands of people with thousands of new ideas about developing the economy. It is my job and the Government’s job to support them. Labour’s view is that the country should wait around for Grant Robertson’s new idea, and apparently his new idea is work. Labour has discovered work; it is just that it is against all of the policies that create work. Bill English


What matters more?

May 2, 2015

The target of returning to surplus this year was always a tough one.

A variety of factors outside the government’s control  have made it much tougher.

The government could take a slash and burn approach to get to surplus this year.

Or it could continue for focus on what matters and take a little longer.

The Opposition would criticise it whatever it did but most people will recognise that other things matter more than the relatively insignificant difference between  a small forecast surplus and a small forecast deficit.
New Zealand National Party's photo.


Better results not ideological obsessions

April 30, 2015

A new funding system for people with disabilities was the subject of this exchange at question time yesterday:

CARMEL SEPULONI (Labour—Kelston) to the Minister of Finance: Is the Productivity Commission report released yesterday indicative of a Government agenda to privatise the welfare system?

Hon BILL ENGLISH (Minister of Finance): No. It is indicative of a Government agenda to get better results for people who really need them. We are happy to debate the kind of toolset that the Productivity Commission has laid out, but I would like to signal to that member and to the Labour Party that we are focused more on getting better results and less on their ideological obsessions. What we are doing is building a system that allows Governments to invest upfront in personalised interventions for the child, the individual, or the family for a long-term impact, and to track the results of that investment. The Productivity Commission has produced a framework that gives the Government a wider range of tools. It has been heavily consulted on with the social service sector to a draft form, and now it will be further consulted on before it gives us a final report. But I expect at the end of that that the Labour Party will be out of step with pretty much everybody by sticking to its 1970s models.

Carmel Sepuloni: Does the Minister intend to establish a voucher system for social services in New Zealand?29 Apr 2015 Oral Questions Page 11 of 15 (uncorrected transcript—subject to correction and further editing)

Hon BILL ENGLISH: Yes. We are under way in establishing a voucher system particularly for people with disabilities. It is called Enabling Good Lives. It has been broadly welcomed by the disability sector. I suspect that the mass adoption of it by the Australian Government in the form of the National Disability Insurance Scheme is going to put a lot of pressure on New Zealand to further develop a sophisticated voucher system for people with disabilities. The reason why is that it gives them some choices rather than being subject to a system where the Labour Party tells the providers—

Mr SPEAKER: Order!

Jami-Lee Ross: What progress has the Government made in delivering better outcomes from social services?

Hon BILL ENGLISH: We have made considerable progress in focusing on our customers—that is, getting to know much better the circumstances and prospects of those most vulnerable New Zealanders. For instance, a child under the age of 5 who is known to Child, Youth and Family, whose parents are supported by a benefit, and where either parent is in contact with the Department of Corrections—and there are a lot of those families; around 470 of them in Rotorua, for instance—is around five times more likely to end up on a long-term benefit and seven times more likely than the average to get to be in prison before the age of 21. In the light of that information, we feel a moral obligation, as well as a fiscal one, to act now to reduce the long-term costs, and we are not—

Mr SPEAKER: Order!

Carmel Sepuloni: Does he agree with the findings of the draft Productivity Commission’s report he commissioned that the Government faces incentives to underfund contracts with NGOs for the delivery of social services, with probably adverse consequences for service provision; if so, does he agree that greater contracting out could harm service provision?

Hon BILL ENGLISH: I agree with the first one but not the second one. The Government often does deliberately, as a result of Government policy, actually, pay less than the full cost of services, and often the users of those services need a higher level of more sophisticated service that what we currently offer them. There is no evidence at all that contracting out, as the member calls it, will reduce service provision. Sometimes that is the right way to do it. For instance, the Government owns no elderly care beds in New Zealand. It is all contracted out. That has been a bipartisan approach for many years with a highly vulnerable population. There are other areas where there are benefits from competition and also benefits from cooperation.

Jami-Lee Ross: What results has he seen from investment in Better Public Services?

Hon BILL ENGLISH: One of the first results we are seeing from taking an investment approach to public services is a much better understanding of our customers. The reports, now published 6-monthly, into the welfare liability have lifted the lid on a very complex ecosystem of dependency. Now we are starting to take initiatives in order to change the way that system works. For instance, around 70 percent of the people who sign up for a benefit in any given month have been on a benefit before. They are long-term regular and returning customers. In the past we have thought that because we found them a job once, that was the end of it. In fact, they need sustained support and employment, and we expect to be taking more measures in order to back up that initiative. But there will be hundreds of others that will involve contracting out, will involve competition, will involve the private sector, and will involve better results. . .

Carmel Sepuloni: Does he agree with the finding of the report, which he commissioned, that “Problems with contracting out are often symptoms of deeper causes such as the desire to exert top-down control to limit political risk.”?

Hon BILL ENGLISH: Yes.

Carmel Sepuloni: Does he agree that the Government needs to take responsibility for system stewardship and for making considered decisions that shape the system, including taking the overarching responsibility for monitoring, planning, and managing resources in such a way as to maintain and improve system performance?

Hon BILL ENGLISH: Yes, the Government can do a better job of what the Government does. We are still unravelling the damage done by the previous Labour Government to our social services delivery, where that Government turned it into what I would call a dumb funding system. Communities and families have an important role as well as Governments—in fact, a more important role. In fact, one of the programmes that the commission refers to is Whānau Ora, which is designed around the radical proposition that a lot of our most dysfunctional families can actually heal some of their own problems and improve some of their own aspirations. . .

This exchange shows a stark difference between National and Labour.

National is determined to improve the delivery of social services, give people with disabilities more choices and reduce dependence.

Labour which is still ideologically opposed to private provision of services even if that gives better results.

And it’s not just Labour which has the wrong idea of welfare and the government’s role in services.

Lindsay Mitchell writes on Green MP Jan Logie’s contention that social problems aren’t solved one individual at a time:

If problems aren’t solved “one individual at a time”, when it is individuals who abuse or neglect each other, when it is individuals who successfully resolve to change their behaviour, what hope? And why have role models eg Norm Hewitt to show what individuals can achieve? Why have organisations like AA who focus on each individual owning and addressing their problem; in living one day at a time to break their addiction?

Logie believes in deterministic explanations for human behaviour. Causes are outside of the control of the individual. For instance, colonisation and capitalism cause social chaos to entire groups. Therefore the largest representative collective – government – must play the major remedial role.

And she has the gall to talk about private service providers securing an “ongoing need for [their] services”.

When for the past forty odd years  government policy has been creating and increasing social problems through the welfare state.

This reinforces this morning’s quote from Thomas Sowell: Although the big word on the left is ‘compassion,’ the big agenda on the left is dependency.


Quote of the day

April 14, 2015

AS if we needed proof that Australia is losing its mojo, our cocky little cousins across the ditch are rubbing our noses in their success.

The Kiwis are killing it.

The New Zealand dollar is set to hit parity with ours, for the first time in 30 years.

Its economy is growing 20 per cent faster. Its GDP per capita is rising while ours is falling.

Its competitiveness rankings have outstripped ours. Its unemployment rate is 5.7 per cent compared with our 6.3 per cent, and that’s with a higher participation rate.

The NZ budget is heading towards a surplus while ours spirals ­further into deficit.

In a world lacking impressive leadership, Prime Minister John Key and his finance minister Bill English are shining lights, running the most successful and stable conservative government in the world. . . . Miranda Devine


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