None dare call them tax rises

00:28, May 17 2012

Call them user-pays charges, excise increases, clawbacks, even early repayments. Just don't call them tax rises. That seems to be the Government's plan as it slowly reveals the true nature of its give-and-take Budget.

Not only will it be a ''zero Budget'', but also a way to raise more revenue, dressed up as ''reinvestment'' in key areas.

It is not the first time Bill English has reached for the ramp-up-the-revenue lever. Last year, for example, he slapped a tax on employers' KiwiSaver contributions; a naked tax grab.

This year will see changes to student allowances and faster repayment of student loans; an effective 2 per cent decrease in take-home pay for graduates that will bring in an extra $70 million a year. This week we heard of an increase from $3 to $5 in the charge on medical prescriptions - a $40m boost to the Government's revenue. In both cases the pill was sugared by increases in spending in other areas in the same sector.

John Key and Mr English would like us to believe that the two are somehow related; that higher user charges here help fund extra spending on cancer there.

That may be how they want us to think; it may even be how ministers think about it. But in the end it is just spin. Five-dollar notes do not flow into or out of the Treasury earmarked as ''health'' or ''tertiary fees''. They all have Sir Ed on and they all look the same.


In the final analysis there is just revenue in and spending out. Borrowing, or debt repayment, fills the gap.

Whether the Government can bring down a zero Budget, a surplus or a deficit is the cumulative effect of all its decisions, not some micro-tweaking in individual portfolio areas, however much that may help the sales pitch.

Extra spending on cancer is not predicated on higher charges at the pharmacy. If you wanted to play that game, the cost of extra nurses for cancer patients could just as easily be tied to tolls on the Auckland motorway or - far more logically - the expected hike in the excise on tobacco.

Which brings us back to the extra revenue, and the way it is raised.

Higher prescription charges, an increase to 12 per cent in the student loan repayment rate and higher excise taxes have one thing in common: they are all regressive. Unlike the progressive personal tax regime, they do not rise in percentage terms as income rises. 

Mr Key was asked about linking the extra charges for meds to income but he brushed it off as too complex to administer - though the Australians manage a differential, albeit with a much higher fee overall.

Like everything else in politics, writing a Budget comes down to choices and priorities. If any politician tells you there is no alternative, alarm bells should ring.

Even if all the current controversial issues are totalled up - $70m from students, $40m from prescriptions, $14m for dumping TVNZ7 - even $24m in budget cuts at Foreign Affairs and Trade - they make little difference to the overall picture in a $75b Budget.

And there are other ways to fund them: a cent or two on the top tax rate or a single cent on the company tax rate, for instance. Faced with similar problems balancing its Budget, the Australian Government has just abandoned its planned company rate cut, leaving it at 30c compared to our 28c rate.

And while we are honing our pre-Budget scepticism, what about balancing the books on this side of the Tasman by the Government's self-imposed 2014-15 deadline?

In the current financial year the deficit is set to top $11b. That's down from last year's $18b, though that was boosted by the $9b cost of the earthquake. Take the Christchurch costs out of the equation and the deficit has actually risen, so the Government is not yet at the turning point - however much it wants to focus our gaze on the two-year-distant horizon.

Meanwhile Mr Key and his deputy have done their share of shroud-waving over the dangers of debt, and the lessons from Europe. But even the normally dry-as-dust International Monetary Fund, during its latest visit, said we were simply not in the same category - or at risk of being in the same boat - as the Greeces of this world, provided we don't go on a huge borrowing splurge.

And credit rating agencies are hardly likely to drop the axe over a few hundred millions more of borrowings or a short delay in the return to surplus.

Where we are exposed is in our overall debt position - principally farmer and household borrowing.

Even as the Government's books are set to turn around, our deficit as a country, measured by the current account deficit, is set to balloon from $5 billion this year to more than $15b by 2014-15.

Steps to lessen that vulnerability, by cutting private debt, are far more urgent for us as a nation than $40m more at the pharmacy till or a year, here or there, before the Crown gets back into surplus.

That would be a far better measure of the Budget's success than an arbitrary date for a surplus or bragging about zero new spending.

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