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Indian Newslink Budget Special 8- The Final Cut

Massive public spending creates avenues for growth

Auckland, May 25, 2017

Finance Minister Steven Joyce presented his first Budget in Parliament at 2 pm today. This is his first Budget as Finance Minister and the Ninth for the National Party since occupying the Treasury benches in November 2008. This is our take on the Budget. Detailed analyses and reports will appear in our Budget Special of our June 1, 2017 print edition.

-Editor

Massive public spending creates avenues for growth

Venkat Raman

Budget 2017 has been hailed as an ambitious adventure in fiscal policy, and as a serious attempt to please almost sections of the economy. It carries a series of bold initiatives that could stimulate the economy and provide relief with its tax cuts at a few levels.

The first Budget of Steven Joyce as Finance Minister presented to Parliament this afternoon has impressed some and disappointed some but the overall impression is that it is expansionist with high levels of expenditure and reliefs to almost all strata of the economy.

The Paradox

There was however apprehension as to how the government would be able to achieve higher levels of growth and manage debt, while giving away tax incentives and benefits.

That the budget came as a prelude to the general election hardly enters the equation, for fiscal policies are (they should be) governed by economics and not politics.

While opposition parties were quick to slam the budget as ‘an insult to the hardworking New Zealander,’ ‘one-dollar budget’ and ‘woeful,’ Mr Joyce was clearly guided by Prime Minister Bill English who held the portfolio for eight years with a good measure of success.

Money in pockets

Mr Joyce has proposed to raise income tax thresholds from $14,000 to $22,000 and from $48,000 to $52,000. The following table describes the change, which will come into effect on April 1, 2018.

Current Bracket ($) New Bracket ($) Rate
1 – 14,000 1 – 22,000 10.5%
14,001 – 48,000 22,001 – 52,000 17.5%
48,001 – 70,000 52,001 – 70,000 30%
70,001+ 70,001 33%

New Zealanders can be certain that these thresholds would not change even if the National government does not return to power on its own or is elected to sit in opposition after the general election on September 23, 2017. No political party would take the suicidal step of altering these reliefs.

There would be an offsetting factor as the Independent Earner Tax Credit, which is a maximum of $520 a year ($10 per week), will be discontinued. It is currently available to individuals with taxable income between $24,000 and $48,000 who are not eligible to receive benefits, New Zealand Superannuation or Working for Families tax credits.

Family Income Package

Mr Joyce has said that the government’s Family Income Package gives more assistance for those most in need, at an annual cost of $2 billion to the exchequer. The changes, which the government estimates would help 1.3 million families by an average of $26 a week, would also become effective April 1 next year.

The Package includes an increase to the Family Tax Credit rates for children under 16 years of age, so that they align with the rates for children aged 16 to 18 years. There would also be an increase in the abatement rate for Working for Families Tax Credits from 22.5 cents to 25 cents in the dollar and decrease the abatement threshold from $36,350 per year to $35,000 per year.

Infrastructure-Rebuild and Expansion

Among the challenges faced by the National government since coming to power in November 2008 were the Global Financial Crisis (GFC) and the Christchurch Earthquakes during its first term and the Kaikoura Earthquakes during its current term.

The government has announced a capital spending allowance of $11 billion for the next four years, a $2 billion increase compared to the December fiscal update and a $7.4 billion increase compared to last year’s Budget.

Housing New Zealand will receive $2.2 billion to invest in the Auckland Housing Programme, accounting for 34,000 new houses to be built in Auckland over the next ten years.

At least some of this ramp-up in capital spending is in response to higher than expected population growth. But the greater part of it appears to be a long overdue catch-up on investment in the nation’s infrastructure, which was put off in the lean years after the GFC and other developments.

Mr Joyce said that the GFC and the Canterbury earthquakes pushed the government to run up debts amounting to about 20% of GDP.

“It was the right thing to do, and the right thing to do now is to run a strong economy and reduce that debt, so that we have the room to do the same again, if required,” he said.

This government is committed to a new medium term target of reducing net debt between 10% and 15% of GDP by 2025, following on from the current target of around 20% of GDP by 2020.

The harsher side

Budget 2017 will compel insured homeowners to pay additional premium to the Earthquake Commission (EQC). From November 1 this year, the premium rate will increase from 10 cents to 20 cents per $100 in cover. An average homeowner would be required to pay an additional $69 a year towards the EQC premium.

Mr Joyce said that the National Disaster Fund which settles claims has thus far paid out more than $9.5 billion for victims of Christchurch Earthquakes and has provided for $500 million for claims arising out of Kaikoura Earthquakes.

From an economic stand, Budget 2017 could be considered expansionary or anti-inflationary, depending on your ideological proclivity.

The former would stimulate the economy while the latter would arrest growth.

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