Shamubeel Eaqub: The blue-red catch-up budget

Shamubeel Eaqub,
Chris McKeen/FairfaxNZ

Shamubeel Eaqub,

OPINION: The 2017 Budget was designed for an election year. Tax cuts to appease traditional National voters and spray of catch-up spending in loads of areas to appease most others.

Opposition parties will be forced to argue that the budget doesn't go far enough. The Budget will be received positively by middle New Zealand – who doesn't like more money in their back pocket?

But there was nothing aspirational in this budget to deal with crises in housing, infrastructure and the much hyped social investment approach to break the poverty trap.

To be fair, most of government spending is already committed and not up for change every year.

Last year government spending was close to $80 billion. Rather, it's the increase in government spending of around $3b is where the new announcements are.

This budget is different form the others in recent years: the purse strings have loosened.

In the first term, government spending was boosting the economy through tax cuts and Canterbury earthquake related spending.

Since then, they have been cutting back on spending relative to population growth and inflation to get the government books in balance, and that was a drag on the economy.

This Budget is an expansionary one. Tax cuts and catchup spending means the Government will be boosting economic growth over the next few years.

The centre-piece of this Budget are income tax cuts.

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The income tax cuts are broad. By lifting thresholds at which tax rates bite, the average worker will receive around $26 more per week.

In reality, these tax thresholds should be indexed to the cost of living and not left to politicians to cynically tinker with in election years.

Increases in working for families and the accommodation supplement were long overdue and will be some relief to families battling rising rents and living costs.

Other spending largely reflected catch-up after some years of restrained spending, which had not kept pace with growing population and costs.

This is welcome and should not have been done in the first place. When the economy is weak, government spending should increase to provide a stimulus, particularly in infrastructure.

Infrastructure investment has increased and some of it will go to rail, which is very welcome.

Increases in roading infrastructure in fast growing places like Auckland will not be enough – we also need demand management through congestion pricing and massive increase in rapid transit.

For me there were three big misses. There are clearly no big ideas on housing. And the Government isn't really investing in its social investment approach. Climate change barely rates.

There were no new commitments to fix the housing crisis.

Modest increase in Housing New Zealand funding by not taking their dividend (which is bizarre in the first place when there is a significant shortage of social housing) will not be large enough or fast enough to reduce housing pressures for New Zealand's most vulnerable.

Without much greater focus on solving local governments' infrastructure funding, housing will also not be solve. Sadly, there is no progress on this front.

The Budget committed $321m to social investment. The social investment approach has been much hyped, where an early intervention costs more but has lower costs later. But the budget showed that it is a low priority.

This compares with $304m for film subsidies and $763m to build more prisons. I am a fan of the investment approach, but there is simply not enough investment.

Climate change was buried in the details. Additional $4m for climate change seems pretty small, given the huge task ahead to meet our obligations under the Paris Agreement.

For most punter, the budget will seem like a sweet deal. For those looking for aspiration and real moves to resolve crises in housing, infrastructure and the poverty trap, the budget drew up short.

Shamubeel Eaqub is an independent economist and consultant. Follow him on Twitter @SEaqub

 - Stuff


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