Right. At my desk with my late-lunch meatball sub. Updates as they come through. In the meantime, here’s some not-unrelated music. (I think this was their best album so, de-facto, the best album of the 1990s and I really hate that it’s called ‘MTV Unplugged in New York’.)
Working for Families cuts reach further down than expected and will hit middle income households as well as those on higher incomes.
The size of public service cuts – $1 billion over three years – was also unexpected. The sweetener for the KiwiSaver cuts is an increase in the employer contribution to 3 per cent, matched by the employee, and a firm date for the resumption of payments to the so-called Cullen Superannuation fund in 2016/2017.
But many families, including middle income families, will be worse off – despite the Government’s earlier suggestion that only high income earners would be targeted by its cuts.
The Government says the cuts are modest – just a few dollars – and will be phased in over 7 years to lessen the pain.
But for a middle-income family earning around $70,000-a-year the combined effect of Working for Families cuts, and the requirement to top up their KiwiSaver contributions, will leave them about $20 a week worse off.
The government has bet the economy will come right and it doesn’t need to significantly cut government spending to get its borrowing under control.
That all makes sense if you believe in GDP growth rates of 1.8%, 4.0% and 3.0% over the next three years.
The trouble is the Treasury has overestimated GDP growth rates since 2008 by around 2-3 percentage points of GDP as households and businesses elected to repay debt.
The government is essentially betting that households and businesses will start borrowing again and stop repaying so much debt.
That’s an heroic assumption given household debt to disposable income ratios are still well above anything normal and the sort of growth implied by Treasury’s forecasts will be accompanied by floating mortgage rates of close to 8%.
On the fiscal side the news is pretty good . . .
It goes on like that. Chris Daniels at The Herald:
What is new is the Government for the first time detailing its plans to raise between $5 billion and $7 billion by partial privatisation of its four state owned energy companies and extending private ownership of Air New Zealand.
Starting next year, the Government wants to sell off stakes in Genesis Energy, Meridian, Mighty River Power and coal company Solid Energy. The exact proportion of private ownership has not been decided but the Government will retain a majority shareholding.
The Budget needs to be judged against the alternative of leaving the previous allowance for $1.1 billion of net new spending on the table, while the economy is still fragile, and waiting to see in May next year how strong the recovery actually is.
Because that $1.1 billion is income people will not now have. It represents less demand in economy that is still short of demand.
Finance Minister Bill English says that if the fiscal settings had been left as they were net Government debt would have peaked at 35 per cent of GDP.
Big deal. Standard and Poor’s evidently thinks so too. It has left the Government’s credit rating unchanged.