Does anyone else have a bit of a sinking feeling?

03:36, May 24 2012

Bill English's fourth Budget has nutted out no less than $4.4 billion of new spending initiatives over four years but at what cost? It's all being bank-rolled by a combination of $3.03b in savings and $1.36b of new revenue.

There are further hikes in tobacco excise, a few tax credits handy for households are wiped and a series of so-called tax loopholes are tightened.

But it's those $3b of savings that perhaps hit home hardest. We've already been told of moves to squeeze hundreds of millions more out of the student loan and allowance schemes - that's money either lifted out of, or no longer dropped in to, the pockets of ordinary Kiwis. A freeze on the inflation adjustment for early childhood education subsidies is today added to the mix.

The Government has not quite admitted it, but it knows ECE (early childhood education) centres will be forced to hike fees as a result of the freeze. Inflation will not stop rising costs for those centres but their funding from the Government will stop moving up to meet it. If centres can't find any savings of their own, they'll either have to shrink their services or ask for more from parents. As that seems likely, families might start wondering what has happened to their income tax cuts of 2009. That might especially be the case for those collected by jumps in user charges elsewhere and perhaps giving up more of their pay cheque in student loan repayments.

All of that too is on top of changes in the last Budget only now flowing through households, which saw big chunks of Crown cash lifted out of the KiwiSaver scheme and to a lesser extent the upper reaches of Working for Families.

But such are the consequences of a Government shuffling its priorities without adding new spending. Voters apparently mostly want to see a return to surplus in 2014-15 so must be willing to swallow the medicine.

And for those willing to look beyond their own backyards, it's not all depressing. GDP growth forecasts nipping over 3 per cent in the next couple of years give some cause to cheer, although English himself admits this is very closely tied to the generally positive prospects in Australia and China, our two key trading partners. And despite the stellar performance of those two economies out of the global financial crisis, the screws have continued to be tightened in successive Budgets here.

Those glorious 2009 income tax cuts seem pretty far away now.


Fairfax Media