On the lead-up to the Budget

Illustration by Tim Denee – NZ Budget 2011
Illustration by Tim Denee – www.timdenee.com

Throughout his government’s first term, the role of Prime Minister John Key has been to be the bringer of good news, the guy who carries the ‘times are tough but the future is rosy’ message – while Finance Minister Bill English has been the bad news bearer, underlining the need to tighten our belts, for eternity.

Hopefully, both of them remember the last time that National launched an austerity Budget, and Ruth Richardson sent the economy into a near-death spiral. Evidently, Don Brash retains no memory of seeing “The Mother of All Budgets” before, and he’d like to play it again and see how it ends.

The Key vs English contrary impulses are set to collide on Thursday when the bad times are to be painted as being so dire as to justify cutbacks in some big ticket public schemes (Kiwisaver, Working for Families) and require further job losses among public servants – but without snuffing out the recovery that Key keeps telling us is just around the bend and beyond the hill once the combo of high commodity prices, Rugby World Cup spending and insurance money for the Christchurch rebuild begins to work its magic.

Key is used to decking the same objects in wildly different garb, depending on context. Routinely, the level of government debt is touted in overseas contexts by Key as one of the jewels in the crown of the New Zealand economy at only 34% of GDP while – domestically – the same figure is portrayed as a scandal that needs be pared back below 30% as soon as possible.

In essence, Thursday’s Budget will be a collision between ideology – its always a good time to shrink central government and try to drown it in the bath – and a reality that doesn’t square convincingly with the austerity message. At the post-cabinet press conference on Monday, Treasury forecasts – which have about the same predictive accuracy as your daily horoscope – were wheeled out to justify the need for continued vigilance on spending. On Thursday, Health, Education and Justice are to be the only areas to be spared the Zero Based Budgeting freeze on public spending.

Most of the media attention will be focused on how severe the cuts will be to the $2.8 billion Working for Families scheme and how these cuts will be structured. In the NZ Herald this morning, Simon Collins has an excellent piece setting out the four likely options facing the government as to how the tighter targeting of the WFF scheme might be achieved.

These options entail either (a) lowering the income threshold at which the credits abate, and the point at which they cut out completely (b) raising the clawback rate (c) putting a cap on the family size that qualifies for support (d) removing the provisions recognizing the extra costs associated with teenage children. None of these options, it should be pointed out, tidily target the legendary band of well-off WFF recipients who allegedly don’t need their current dollops of taxpayer largesse. Can the Treasury snipers pick off the undeserving, without inflicting collateral damage on the middle class battlers and the deserving poor ? We shall find out on Thursday.

The changes to Kiwisaver are likely to be more brutal, if only because the rationale is even more threadbare. True, WFF is a flawed scheme, one that abandons the families of beneficiaries, but at least it does attempt to compensate for the yawning gap in income inequality in New Zealand. In similar fashion Kiwisaver has been a belated attempt to address our lamentable savings record. The Budget will be seeking to offload more of the related costs onto employers and employees without capsizing the scheme.

On one level the changes are likely to entail a 180 degree reversal of the cuts to employer contributions that the same government recently introduced. How can this zigzag possibly be rationalised? Simultaneously, Key hinted at this week’s press conference that employers may be able to treat Kiwisaver contributions as being at least partially in lieu of wage increases to employees. In other words, the changes are shuffling the shells under which the government is hiding a shrinking number of beans.


For anyone who missed out on last week’s John Key interview on the BBC Hardtalk programme, here are the links:

Outside the Beltway, I’ve found it alarming how many people seem unaware of this interview. Not so long ago, this sort of encounter would have been re-screened in prime time, on public television. It is a measure of TVNZ’s abandonment of its role as a public broadcaster that we now have to rely on such news being uploaded to YouTube by a member of the public, and promoted by word of mouth.

At times, the interview does look like a very large cat (interviewer Stephen Sackur) playing with and batting around a seriously stressed mouse. It is also a model of how rewarding it can be to watch a polite, persistent and well researched interviewer engage with a public figure. Good television, all around. Shame that such programmes are now an extinct species in this country.


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