To me the most telling thing about this budget is English’s decision to tax employer contributions to Kiwisaver. Why is the Finance Minister increasing taxation on savings when the ongoing crisis crippling our economy is our private debt and inability to save? Maybe he has some technical, policy-based or even ideological reason, but I’m pretty confident it’s simply because he desperately, desperately needs the cash and this is a nice, covert way to extract it without anyone noticing. He could just raise income taxes or corporate taxes a fraction – but then the opposition would make fun of him, and Dr Brash might write him an angry letter. So instead we get fiscal policies complicating the taxation and savings regimes, purely because the Finance Minister won’t swallow his pride.
The other signature policy is the decision to move the liability for KiwiSaver employer contributions for public employees onto the departments that fund them. It’s just a shell game that lets English and Key force HUGE cuts onto those departments – but the total funding level is still the same or higher! So they can make massive cuts and still stand up in Parliament and say they’ve ‘increased funding’ in those areas.
National used to accuse Labour of ‘government by spin’, but at least there was some level of basic governance happening.
Fiarly outlandish economic growth projections from Treasury. Truly heroic confidence in the efficacy of their own ideological policy prescription, and a marked inattentiveness to the lessons from their past inaccurate forecasts.
Comment by DT — May 19, 2011 @ 4:07 pm
I love how they trust the Treasury (who’ve been sooo accurate of late) over the IRD for how much tax they’ll collect. An extra $4billion gets you to surplus that much quicker.
Also, cuts from unspecified departments, let alone programs. We just trust they’ll find appropriate things to cut to make up the amount, and by them not telling us, we won’t feel the pain.
Comment by Ben Clark — May 19, 2011 @ 4:10 pm
So Blinglish only plan is trusting the word of his Druid mates in Treasury that the growth fairy is going to save us?
So let me get this right. After really, truly, deeply believing the bizarre idea tax cuts for the rich would lead to trickle down economic growth, the only other idea of this government’s great white economic hope is to actually stake the nations future on the idiotic projections of Treasury?
That’s it man, game over man, game over! What the fuck are we gonna do now?
Comment by Sanctuary — May 19, 2011 @ 4:12 pm
I assume it’s a belief that we’ve been through the worst, we’ll start to get the benefit of the general world-wide economic upturn and hence govt revenue will rise accordingly. It makes sense.
If it doesn’t happen I suppose we’ll have to put up with endless rounds of demonising beneficiaries and farmers as we squabble over crumbs and that mythical export, knowledge industry-lead recovery remains out of reach.
Comment by NeilM — May 19, 2011 @ 4:12 pm
The knowledge economy will perform much better now that research funds have been cut by $250 million.
Comment by marsoe — May 19, 2011 @ 4:14 pm
“tax employer contributions to Kiwisaver”
Wait, they’re WHAT?!
So they tax the employee contribution at full whack (as it’s calculated on pre-tax income but paid out of after), tax the returns (under PIE), and now tax the employer contribution and minimise the blunt tax credit that was meant to offset some of that stuff. Hey Bill, you’re meant to incentive retirement savings and recognise that the more of them there are, the lower our eventual tax bills will be in the long term.
Would love to see effective tax rates for KS contributions across a range of incomes. Average effective tax rate on Australian super fund apparently sits around 6.5% (with headline rate of 15%)
Comment by garethw — May 19, 2011 @ 4:22 pm
Surprising and distressing for me, is that employer contributions to Kiwisaver will now be taxed.
It goes something like this. The government reduces its (effective) contribution by half (to a measley $500 per annum per participant) and expects employees and employers to up their contributions to make up for this. But the government then removes the tax exemption on employers contributions, not just for the increase that the government mandates from them, but for all contributions. Which means less money going into employees savings.
So what is actually left of kiwisaver as a savings scheme incentivised by the government? A $1000 one-off startup, and $500 bucks a year. The scheme is completely gutted without the tax exemption on employer contributions, and in doing so removes the greatest incentive that many (like me) had for joining it in the first place.
Comment by DT — May 19, 2011 @ 4:25 pm
hmmm… i can pick up flights to melbourne for about $600 on grabaseat at the minute.
thanks guys, and now very seriously considering them.
Comment by Che Tibby — May 19, 2011 @ 4:26 pm
Auckland – Sydney is only $70 on Jetstar. Anyone can afford that.
Comment by George D — May 19, 2011 @ 4:46 pm
See you later Che. See how you like life under Gillard.
Comment by The Double Standard — May 19, 2011 @ 4:49 pm
DS, I’ve just returned from Australia (for personal reasons). I can tell you that there is has been a cross party consensus to high wages for the last 3 decades. They still have strong unions, wage protections, and inflexible labour laws. It makes up a lot of the difference. The high cost of labour reduces the relative costs of other capital investment, meaning that labour productivity is very high (and thus justifies those wages).
Comment by George D — May 19, 2011 @ 4:52 pm
DT: Eternal contribution holiday. It’s working for me.
Comment by Simon Poole — May 19, 2011 @ 4:53 pm
$600?
bit pricey for one-way
I don’t see much point blaming National for our economic woes, nor Labour for that matter and I think we’re fooling ourselves that a change of govt would make such a big difference.
The problems have been around for a long time. A decade of Good Times and Cullen couldn’t save us from being hit really hard by the financial crisis.
Comment by NeilM — May 19, 2011 @ 4:57 pm
Simon Poole: Seems like a good idea now.
Comment by DT — May 19, 2011 @ 4:57 pm
Also: Cutting course-related costs for part-time students. Seriously? Does it cost *that much*?
Here’s an idea: How about tying the amount to a students EFTS. It’s not like they’ve even increased the amount you can get by CPI.
As a part-time student who spends the rest of his time looking after a toddler, I can’t exactly fork out a couple of hundred bucks on texts at the start of a new semester. Luckily I’ll only have one paper to go by the end of this year, but I’m sure there are a lot of other students in a similar situation. Given that they’ve already fucked the TIA… I got nothing. Just speechless really.
Comment by Simon Poole — May 19, 2011 @ 4:58 pm
I can tell you that there is has been a cross party consensus to high wages for the last 3 decades.
underpinned by mining.
Comment by NeilM — May 19, 2011 @ 4:59 pm
GD: I don’t disagree with you much. If I didn’t have such a nice lifestyle and big shed here I’d probably be in Aussie too. I just get a bit tired of the air-fare comment. If you want to go, then go. Don’t pretend that you are leaving because of one National budget though.
Comment by The Double Standard — May 19, 2011 @ 5:00 pm
ok. Kiwisaver.
if my *minimum* contribution has to increase to 3% then i’m out of pocket on a dog of a retirement savings scheme.
worse, they’re increasing the employer contribution, pushing down salary increases, AND taxing the increase.
that means i’m losing more of my contribution that i gain, while also suppressing my salary increase.
in other words, i just got the shaft. i pay more for less gain.
Comment by Che Tibby — May 19, 2011 @ 5:29 pm
Trying to understand the magical “4% growth in 2013″ number, which seems to be the key to this budget. It’s really hard to make an argument that the budget as a whole promotes rather than slows growth — maybe the stimulus will come when we all quit KiwiSaver and spend our money on weed to forget how much the economy sucks. Though that’s not something we’re going to pay GST on.
The assumption seems to be that we can return to something like our old growth trajectory without having to do anything — perhaps even if we actively work against it. You can see why this idea would appeal to an old school Tory like English. The only evidence for it, though, is “the model says so”, and the model hasn’t been doing to good of late. There seems to me to be a pretty big political risk: if this growth doesn’t pan out, National (if they win this year, which they seem to assume they will) could be in trouble in 2014. (But this time last year I thought “if unemployment stays above 6%, National could be in trouble in 2011″, so what do I know?)
Comment by bradluen — May 19, 2011 @ 5:55 pm
Worried that the Nats numbers don’t add up? Then have a look at this from Stuart Nash:
http://blog.labour.org.nz/index.php/2011/05/19/treasury-v-ird-4b-diff-in-forecast-revenues/
“On page 81 of the budget docs it states “…the total difference between [the IRD and Treasury's] tax forecasts across the five June years 2011 to 2015 is nearly $4b…” “The lower forecasts of tax revenue from Inland Revenue indicate there may be some downside risk to our tax forecasts”
May be some downside risk??? Understatement of the year.! IRD are the government’s tax collectors. Would be wise to go with their advice I would have thought. Govt gone with Treasury.”
- Holy fuck.
Comment by Bill Engrish — May 19, 2011 @ 6:03 pm
if we don’t get the growth we’re fucked.
The govt could raise taxes, but that will have minimal impact since it’s not really the problem and that would take money out of the economy and lead to less growth.
We could borrow more money. But since we’re trying not to do even more of that than we are already that would make no sense.
The govt could pick winners and invest in the next facebook or google. The knowledge economy. That might be tricky.
We could federate with Australia. That would at least save on airfares.
Comment by NeilM — May 19, 2011 @ 6:10 pm
Again, I suppose Che will be going on a contribution holiday, then joining a private retirement scheme with no employer contribution, and no taxpayer contribution, and will be much better off as a result?
Comment by The Double Standard — May 19, 2011 @ 6:10 pm
“….the liability for KiwiSaver employer contributions for public employees onto the departments that fund them.”
If this is valid then will Parliamentary Service get payment for the very generous MP Super and the MP Kiwisaver contributions from the MPs themselves? Consistency?
Comment by Ianmac — May 19, 2011 @ 6:13 pm
what’s the point of the tax credit at all if they’re just going to tax the employer contibutions now? Isn’t that just giving with one hand and taking with the other?
Comment by Catherine — May 19, 2011 @ 6:31 pm
The govt could raise taxes, but that will have minimal impact since it’s not really the problem and that would take money out of the economy and lead to less growth.
Bzzzzzzzzzzzzt!
Worked for the previous government.
1.5billion = minimal thats eleventy hundred squillion Dairy farms!!!!
Comment by andy (the other one) — May 19, 2011 @ 6:57 pm
ok. Kiwisaver.
if my *minimum* contribution has to increase to 3% then i’m out of pocket on a dog of a retirement savings scheme.
in other words, i just got the shaft. i pay more for less gain.
Ok. Kiwisaver.
you put in 3% and your employer puts in 3%. The government still gives you a little to partially offset the cost of fees for management of the fund.
Compare that to other retirement-focused investments/funds where you put in your, say, 3% and… that’s it.
If you’re getting shafted as you approach retirement, it might pay to place some blame at your own Math skills, rather than all at the feet of Key and English.
Comment by Phil — May 19, 2011 @ 7:38 pm
I haven’t seen English’s reason for doing this but have just seen the figures on TV.
Those on low incomes might miss out on around $200/year, at incomes of $100,000 that goes up to $1,000. So maybe it’s about targeting ie stopping more wealthy people getting so much govt subsidy, much like with the changes to WFF.
Comment by NeilM — May 19, 2011 @ 7:39 pm
I have read John Boscawen’s reaction to the budget:
http://www.act.org.nz/news/budget-2011-an-opportunity-missed
He has totally and utterly hammered National’s budget.
There is surely no way that the ACT Party can vote for the budget after their leader gave a speech like that. One can only expect that they will vote against it – and show that the National Party has to rely on the Maori Party to pass a budget (allowing ACT to say to National voters – choose us or the Nats will have to rely on the Maori Party…)
Will Maori Party be left standing as the only party that supporting National’s budget? That surely won’t do them any good in the by-election. They might pull their support.
It will suit ACT – as they get to capitalise on Brash’s increased attention on the Party (verse that bump ebbing away over a few cold winter months and attention shifting to the World Cup). And they get to reinforce their brand as determined to “fix” the government.
Then we will be going to an early election. Like in a month or something.
Comment by Bill Engrish — May 19, 2011 @ 7:43 pm
@NeilM: Yes, that possibility had crossed my mind. After all, why should someone on $400k get employers contributions tax free up to about $7-8 k whereas someone on 30k would only benefit by well south of $1 k?
But the answer isn’t to impose the tax in a blanket fashion: simply put an upper limit on it so that, for instance the tax only kicks in for amounts equivalent to income contributions over (say) $70 k??? Okay, not well expressed but you get what I mean.
Comment by DT — May 19, 2011 @ 7:45 pm
There is surely no way that the ACT Party can vote for the budget after their leader gave a speech like that.
Confidence arrangements in NZ always assure confidence and supply. Vote down the budget and their coalition is gone, and we’re more than likely headed to an election. That’s not going to happen.
Comment by George D — May 19, 2011 @ 7:49 pm
George – yes it does say that. But there are also one hundred pretences in the agreement itself that ACT could point to as National not fulfilling its promises: size of government has increased as a proportion of GDP, GDP per capita has reduced – and to top it off: National cut Brash’s 2025 Taskforce, which was provided for in the agreement. So who broke it first?
Comment by Bill Engrish — May 19, 2011 @ 8:02 pm
missed the point double standard. don’t worry, i’m not upset, in my experience very few right-wingers seem to understand economics.
the problem is that the changes to KS make me worse off in the long term. first, not only do i lose money out of my pay (my compulsory contribution is increased), but my employer contribution is *smaller* in real terms (an increase of 33%, but i pay the top tax bracket, so my employer will be putting less into my KS account), but my employer will also decrease any salary increase to cover the compulsory increase in employer contribution.
awesome. i just lost money out of:
1. my pay packet
2. my savings scheme
how fcking great is that.
Comment by Che Tibby — May 19, 2011 @ 8:17 pm
Notes:
Superannuation is untouched. Obvious, but it is the elephant in the room.
The NZDF sees steady increases in their budget, which is already fairly substantial. If NZ was serious about saving money, we’d downscale their operations – a military is “nice to have”, but not really necessary.
We’re now spending as much on climate change obligations than we are on the entirety of the accident healthcare system (ACC).
Investment in state-highway renewal has been slashed to zero (literally) while huge amounts are pumped into Roads of National Significance, like the Wellsford – Puhoi road.
All from Keith Ng’s magic wheel.
Comment by George D — May 19, 2011 @ 8:18 pm
On Close-Up, Mark Sainsbury continues to see off all contenders for the coveted title of New Zealand’s Worst Interviewer.
He mentions the Treasury forecast on Kiwisaver uptake being (I paraphrase) totally fucking wrong, wronger than Mr and Mrs Wrong living in Wrong Street, Wrongsville, Wrongshire.
Meanwhile Key cites (you guessed it) the … Treasury forecast! as the reason to believe in the Budget. Sainsbury can’t join the dots. Only a four year old could do that.
Comment by sammy — May 19, 2011 @ 8:40 pm
Che Tibby
Please hurry up.
Comment by Adolf Fiinkensein — May 19, 2011 @ 8:42 pm
Scanning the numbers… The high growth projections are driven by investment, including an astonishing 53.5% projected change in residential investment between the 2012 and 2013 March years (p. 70). You’d expect a strong increase based on rebuilding Canterbury if nothing else, but still… a 53.5% increase in one year? Does anyone who knows housing know if this is credible?
Comment by bradluen — May 19, 2011 @ 8:47 pm
adolf i can call you an arsehat from aussie too man.
you do know that they have the internet overseas as well?
you farmers…
Comment by Che Tibby — May 19, 2011 @ 8:48 pm
You know Che, I believe that Adolf (if it is the same Adolf Finkensien) actually saw this coming and moved to Australia in advance of the budget a couple of months ago. Right Adolf?
Comment by DT — May 19, 2011 @ 9:30 pm
Recently I went back to my home town – a medium sized provincial city. While I was visiting my parents, I thought I would get my birth certificate. Surely, I thought, an easy task at the local courthouse, repository of my families birth, death and marriage records since the 1850s. But no. The man under the births, deaths and marriages sign said it had all gone to Wellington, over a decade ago. I had to ring a 0800 number. Waited for over an hour, on three separate goes. From where I live in Auckland I could have gone to the CBD, got the bloody thing at the office there and gone home in less time.
Maybe the LTSA in My hometown could help with me replacing my license? Nope. There was one bored looking woman in a cavernous, dark, cold and poorly sign posted office who apparently had no authority to do anything. I just came back to Auckland and did everything here in a few hours.
The point is that provincial cities were laid waste and effectively abandoned by the 1984-1999 neo-liberal barbarians. Core government services were centralized and never returned. The billion dollars Bill English wants to save will mean that the already difficult task of getting a birth certificate, or a drivers license, or a whole host of other stuff is going to get even harder. I reckon getting your birth certificate in my home would have been easier in 1912 than it will be in Bill English’s 2012 neo-liberal paradise.
But the good citizens of my home city still pay the same level of tax.
Comment by Sanctuary — May 19, 2011 @ 9:50 pm
CT – Maths check for lefties – a change from 2% to 3% is a 50% increase, not a 33% increase, so the employer contribution does not decrease if it is taxed.
Comment by The Double Standard — May 19, 2011 @ 9:59 pm
my bad.
doesn’t make me any less pissed off
Comment by Che Tibby — May 19, 2011 @ 10:04 pm
@Double Standard:
Maths check with the innumerate:
A change from 2% to 3% is a 50% increase: Correct! Well done you!
But taxing employer contributions of is not a 33% decrease. 33% tax on 3% (after being 0% of 2%) effectively means a decrease of 1%.
That 1% cancels the 1% increase from 2% to 3%. Now, combined with the decreased government contribution it is an overall decrease.
Comment by DT — May 19, 2011 @ 10:07 pm
DT… worst explanation ever.
but yes, a net decrease in govt contribution for top tax bracket earners.
Comment by Che Tibby — May 19, 2011 @ 10:15 pm
From where I live in Auckland I could have gone to the CBD, got the bloody thing at the office there and gone home in less time.
it’s going to get even easier. It’s all being farmed out to the parking ticket machines, or “kiosks” as they’ll be called. txt a passport, marriage license etc. $2 for a 1/2hr wedding.
Comment by NeilM — May 19, 2011 @ 10:46 pm
DT, thanks for confirming that what I said was correct.
Comment by The Double Standard — May 19, 2011 @ 11:02 pm
@Sanctuary – might I just compliment you on your choice of movie quotes. A real favourite of mine.
Comment by Hemi — May 20, 2011 @ 12:06 pm
Taxing employer contributions to Kiwisaver looks suspiciously like a payroll tax.
Borrowing to fund tax cuts and relying on Treasury projections of 4% growth takes us back to the future.
It invites the revival of “Borrow and hope”, a slogan much loved by the National Party back in the 1970′s when attacking the Rowling led Labour Party.
It was the Labour government of that era that introduced a payroll tax. It was this tax that led to the notoriously memorable “dancing cossacks” ads used by the Nats to spook NZ voters to dump Labour and bring in Muldoon (Yay). The payroll tax was axed. If that tax had been untouched we would not be in the economic misery we are in.
Sigh!
JK, Blinglish and the Treasury policy wonks land us with a “borrow and hope” policy and a payroll tax.
Zeesh the National (born to rule) Party is SOOOO clever, (and never expedient).
Back then the Labour Party were trying to (among other things) ensure the integrity of the social welfare
system.
Now Blinglish and JK are trying to (among other things) to ensure the integrity of tax cuts for the wealthy and dumping on the rest of us.
Comment by peterlepaysan — May 20, 2011 @ 9:20 pm