None dare call them tax rises

Last updated 12:28 17/05/2012

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.

Follow Vernon Small on Twitter.

71 comments
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Makk   #1   12:41 pm May 17 2012

There IS a difference between spending and revenue. Cutting spending is not a tax... no matter how you try and spin it.

Sara   #2   12:46 pm May 17 2012

Are we suddenly waking up and realising that nothing is free? That you can't cut taxes to the bone and properly maintain a developed nation, especially one recovering from a severe natural disaster?

Say it ain't so. I want to go back to 2008 when journos breathlessly reported that tax cuts were free money and nothing important was going to be cut to pay for them - John Key promised.

Mark Miller   #3   12:47 pm May 17 2012

Representative democracy doesn't work, we need a better answer.

Avinash Rao   #4   12:51 pm May 17 2012

It's not a tax increase if you are not taking money away from people. They are saying they will stop subsidising as much which is clearly not the same as a tax increase. In any case, as much as the lefties like to complain about everything the Government does, the increase in prescription charges is entirely reasonable. It hasn't changed in 20 years - had it increased each year by the rate of inflation, it would be roughly $5.41 by now. Which mean this is effectively just an inflation adjustment.

Confused Student   #5   12:55 pm May 17 2012

I saw Gareth Morgan suggest that the government needs to tax capitalism in the property market on the news the other night. Here is a man who made his wealth and continues to make money in this market. Surely MR Key has to look at this as a way to make revenue for our country. Or is he afraid he will upset all his buddies?

PD   #6   01:10 pm May 17 2012

Confused Student #5

They do that in the states - note facebook favour renouncing his citizenship to singapore so he doesn't get wallopped in tax.

And heres the rub. People are attracted to investments because of tax free dollars. Tax them and they may not want to invest. This of course could be a good thing if you lower other taxes. It could be used to shift investment in more productive areas. The trouble is they may choose to invest overseas where the tax system is more fourable. Mr Key rather have the investment here in NZ.

Answer lower company, personal and dividend tax rates to encourage earning to be redistributed that way and tax the capital gains at a higher rate. However that will not please the left who will see it as favouring the better off. This is despite 40% of tax payers - predominately lower paid receiving WFTCs equal or greater than their personal tax. Now confused student tell me how that works?

selfishness and greed   #7   01:11 pm May 17 2012

This govt has one basic principle: to hit ordinary people while giving themselves (ie the rich) a free ride. The day NZers understand that is the day that they will rise up against this government.... if they have any guts, that is.

justice   #8   01:21 pm May 17 2012

ahh yes, lets also call them 'compulsory levies +GST ' or 'rates + GST' . the stealth tax list goes on and on

Brennan   #9   01:22 pm May 17 2012

Avinash Rao, the problem is it directly imposes the highest costs on those least able to pay, with the least cost on those most able to pay! The data is very clear those in poor health are much more likely to have low incomes AND those with low incomes are much more likely to have poor health! That is both stupid & unjust! Why do I say Stupid? Those in poor health deteriorate (as they struggle to or can't afford proper care & medicine) & cost us all much much more! Wide low cost primary healthcare is by far the most cost effective health intervention after public health programmes & interventions (using the technical sense here). This sort of stupidity also advances major medical threats like resistance to medicines as those who struggle don't get repeat prescriptions etc. Think I am kidding? It is not quite 2 years since I was unemployed (only time I have been on a benefit in 50yrs) & the financial cost was something that affected my seeking / taking up healthcare when sick! Sometimes it was no doctor or prescriptions OR not pay the power bill OR not eat! Despite all my careful planning, experience etc! Budgeting is a professional skill of mine but even skill won't allow not enough cover all needs.

Ash   #10   01:30 pm May 17 2012

Is anyone else getting a bit sick of all our economic sorrow being blamed on the Christchurch Earthquake. I am sick of hearing about it to justify inept spending practices, ineffective goverment policy and supporting the boys club while 90% of New Zealand have to tough it out on what they can scrape together each week.


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