Budget time: what 2011's effort must do

The election year budget is always a politically important moment. 

The Government has its final chance to set out big picture policy directions, which it will be held against come election day.  The Opposition has its chance to define itself in its critique, and gets the information it needs to pull its policy framework together to present to the people.

Playing out this year are many other factors that increase the importance of what is decided. The means of paying for the Canterbury earthquakes will need to be spelled out, and the ongoing effects of the world-wide economic crisis continue to demand a response.

The Budget needs to tackle this situation comprehensively, with two objectives in mind:

• kicking economic growth off again, and
• building a more equal society.

These two objectives support each other, and they are in line with what Kiwis expect their governments to achieve on their behalf.

To get growth moving, the Budget needs to set out some clear directions on:

• increasing the domestic savings rate and the capacity of government to deal with pensions in the medium term
• what sectors are going to be the focus of an export-led growth plan, and what will be done to help those sectors grow
• how we will change the monetary policy framework so that the erratic NZ dollar stops being a savagely negative force on productive investment
• increasing access to skills training and education, to allow for reconstruction and to get more people ready for work
• deepening the pool of capital available to NZ business by reversing recent cuts to support for workplace savings
• how the tax system will change to encourage productive, and discourage unproductive, investment.

In building a more equal society (which is better for everyone in it, happier and healthier and likely to be faster growing as well), the Budget needs at least to:

• show a commitment to catching up with Australian labour market law, so working Kiwis have a better chance of negotiating decent wages
• undoing recent changes to the tax system that have put masses of cash in high income earners' pockets, causing a lift in inequality and driving the budget deep into deficit
• tackle the crisis of affordable housing, so more people can get a foot onto the ladder of asset ownership

To pay for Canterbury, which was an expensive wealth-destroying event that has effects on the whole economy, a targeted time-limited tax increase has to be on the agenda: we can't stifle the economy or lift unemployment by cutting public services and infrastructure investment to meet the costs, and we can't afford to keep going down the route of 'borrow and hope' which now seems to be National's default option.

Of course, there is more chance of the sky turning green than the Budget taking this approach, or securing these things. 

It won't tackle the real challenges the country faces.

It'll be about entrenching privilege for those at the top of the tree, paying for pet projects, and blaming the opposition for the debt blowout and growth crisis caused by the government's own decisions (or lack of them).

It'll talk tough on making difficult decisions, but it will actually show the Government taking the easy way out and delivering only to its base, at the expense of most New Zealanders.

Which is why the only reasonable verdict about Budget 2011 is that it will be a failure.

Comments

[Draco T Bastard]

These two objectives support each other,...
No, really, they don't. As we've seen over the last 3 decades where we had lots of growth but all the gains going to the top 2 or 3 % with even most of that going to the top less than 1%. Throw in Peak oil which happened, according to the IEA, between 2k6 and 2k8 and growth isn't part of the mix for the foreseeable future.

The only option for a better, more equal society is more equal distribution and democratic control of the nations resources.

BTW, what I expect of the government is to maintain connection with reality and everything you've written here shows that you aren't.

[Monty]

The problem with you socialists is that you always talk about a fairer society / a Just society / an equitable society - in other words a socialist utopia - idealogical crap that will never happen.

What Uncle Billy needs to do is get the outragous annual deficits (Cullen's vindictive legacy) under control. Reduce the $15b annual over spend, by means testing Guys like Jim Anderton who is worth millions with an income to match, putting interest back on student loans - even if it is CPI + 1%, getting rid of WFF mk2 (I don't like Mk1 much - but that is beside the point), then also reintroduce youth rates for employment, and finally make a committment to merge several government departments.

Raising taxes and the like is not going to help one bit. It is just socialist nonsense. I suppose your ideas have already been rejected by the electorate based on Labour's current and pathetic polling - hopefully the Nats with Act being their spine may finally get the chance do dot he hard yards and undo the Cullen Legacy.

[SPC]

Given most of the increase in the budget deficit is caused by the failure of this government to get the economy out of recession or otherwise its tax cuts (the rest comes from the legacy of Bollard's recession, the GFC and the earthquake impact), it's sily for the right to play the blame Cullen game (attack him for presiding over the property market asset bubble, but remember Brash was silent at the time on this issue and English even dismissed alternative options to raising the OCR up and up, such as a surcharge on mortgages).

Thus increasing revenue is an important part of closing the deficit, as is restoring economic growth.

A 1% earthquake levy is a no brainer, as is introducing a dedicated way of financing the Cullen Fund - 2% from all employees and employers.

Revenue growth comes from returning company tax to 33%, a top rate for those over $100.000, the establishment of a CGT (including a 1% land tax on earning property - rentals and farmland), placing a 1% surcharge on home mortgages (instead of raising the OCR to 3.5%
with the first sign of economic recovery) and of course a FTT.

As for economic recovery, invest in new home starts in Auckland (on-sell the properties to repay the debt), require all rentals to be insulated and all farms to meet minimum land
environment/conservation standards. Resume Fast Forward and the 15% R and D tax credits.

We need the new housing starts to keep rents down and prevent a shortage impacting on house prices - that would increase foreign debt from the impact on mortgages.

Such a programme reduces the budget deficit and eases looming OCR pressure on the dollar value. A major reason for our under-performance over the past 20 years has been the adverse impact of monetary policy on investment in the productive sector.