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Dear Friend,
Callum and I are just out of the Beehive bunker where we’ve spent the morning poring over Grant Robertson’s sixth budget with media and analysts before it is delivered in Parliament.
Summary: nothing big bang spending wise other than free ECE for 2-year-olds. Tax hikes for those with trusts, and at the fuel pump. The economic news is better than had been previously forecast, but the government debt figures are getting much worse.
There’s nothing game changing or visionary in this year’s budget. Grant Robertson and Chris Hipkins have taken a scatter gun approach to this year’s new spending. Dobs of cash here, there and everywhere, but no major initiatives that are likely to shift the electoral dial.
The first half of this email lists initiatives the Government wants you (and the media) to focus on. The second part is what we’ve found, and they don’t want you to know.
The headline initiatives (what Chris Hipkins wants you to focus on) 😉
Here are the things the spin doctors in the Beehive are highlighting:
- Extending 20 hours ECE to 2-year-olds (eventually costing c.$380m/year)
This is the closest thing this year’s budget has to an electoral sugar hit. For those with young families and working, it’s a boost to get back to work. A less expensive way of bringing down childcare costs would be to bring staff to child ratios in line with other OECD countries.
- Scrapping the $5 prescription co-payments for everyone (c.$175m/year)
The Government argues that this will relieve pressure on the health and care system by ensuring more people collect their prescriptions and fewer have to go into hospital.
- Free public transport for kids – half price for teenagers (c.$80m/year)
Children under 13 will get buses, ferries, and trains for free with under 25s getting half-price.
- Cyclone recovery, infrastructure, and “National Resilience Plan” (allocating $6b capital over the four-year forecast period).
As expected, there is large capital expenditure allocated to Auckland flooding and Cyclone Gabrielle recovery. The Government has also announced a “National Resilience Plan”.
- 3,000 additional public housing places ($3.1b, $465m operating over the four-year forecast period)
This is a mix of community, Māori, and temporary (cyclone related) housing.
- Investment in education to build more schools and classrooms, reduce class sizes, increase teacher pay and tackle truancy ($1.3b capital, $3.6b operating over the forecast period)
Populist policies such as reducing class sizes haven’t been shown to have much of an impact on attainment and paying teachers more is all well and good is they are high performing, but it means the bad teachers get paid more too.
The Gimmicks 🤡
It is usual in budgets to be crammed full of headline-grabbing gimmicks to oil the political squeaky wheels. This year’s budget is sadly no different:
- “Cheaper energy bills” i.e. subsidies for heat pumps, insulation installations, and LED light bulbs
The Government is expanding the “Warmer Kiwi Homes Programme” to provide 100,000 new heating and insulation installations, 7,500 hot-water heat pumps and 5 million LCD light bulbs. That’s nearly one each!
- Supporting the growth (corporate welfare) of gaming sector
The Government is picking winners by announcing it’s doing to video games what it does already for international movie studios: Competing against Australia for economically dubious ‘rebate’ subsidies.
- More electric vehicle charging infrastructure
- “Investments” in Green Hydrogen and subsidies for trucking companies to buy electric trucks
Yet again, the Government repeats the claim that increasing the use of electric vehicles “reduces emissions”. Of course, that’s not true. Any decrease in transport emissions are simply made available under our fixed cap emissions trading scheme for other areas to use. These subsides simply make climate change mitigation more expensive that it need be.
- Improving data on impacts on climate change, including data on how climate change impacts Māori.
What Chris Hipkins doesn’t want the media to focus on 🤫
As part of Ruth Richardson’s Fiscal Responsibility Act, since 1993 Treasury has been required to prepare independent fiscal and economic forecasts twice a year (and just prior to an election).
So the first thing we do when we get into the Budget lockup is to check the headline forecasts against the half-year update back in December.
The numbers don’t lie
Despite better GDP and employment forecasts, gross debt forecasts are skyrocketing.
The debt figures are starting to look ugly. Grant Robertson’s speech would have you believe that the Government books are rosy. Yes, Treasury are no longer forecasting a recession, and unemployment is now forecast to peak less at 5.3 percent next year (compared to December’s forecast of 5.5 percent), but that makes the debt situation even more questionable.
Back in December, Treasury forecast gross debt to be $193 billion ($98,229 per household) or 39.9% of GDP by 2027. Just six months later, the same officials are now forecasting gross debt to be $214.5 billion ($109,171 per household) or 44.3% of GDP. That is an alarming change for just six months given the economy is not expected to be as bad between now and then.
The elephants in the room: the tax hikes that Grant Robertson insists aren’t a tax hike 🐘🐘🐘
Do you have a family trust? So much for Chris Hipkins’ ‘no tax hikes’ promise. Tax hikes for 1 April 2024 ⬆️
Yesterday, Mr Hipkins was saying that today’s Budget would not be putting up taxes. Maybe Grant didn’t tell him, but today’s Budget puts up the trust rate from 33 cents in the dollar to 39 cents.
In his comments to media, David Parker tried to frame it in context of his recent ‘Nosey Parker’ report into the country’s uber wealthy. In reality, it will hit SME-business owners who own their family business via a family trust. For the uber wealthy, this change will incentivise keeping capital within companies (which will soon be paying a considerably lower company rate of 28%).
Do you own a car? Tax hikes for you in six weeks’ time 🚗⛽️💸
The Budget locks in tax hikes for motorists. From 1 July, fuel tax will be increasing 29 cents per litre. That will return to a situation where for many people (in particular, Aucklanders) more than half of the amount paid at the pump will be tax!
And for all the talk of helping those most in need, fuel taxes disproportionately hit the poor (who can’t afford electric vehicles), or those who live in rural areas.
So much for savings and reprioritisation! 🤷♀️
For all of Grant Robertson’s recent show of promoting himself as some sort of fiscal hawk, the “Savings and Reprioritisation” section of his 154-page Budget Document amounts to half a page – and all of it has already been announced.
And of the $4 billion, a big chunk of it (c.$850m) is thanks to efforts of your humble Taxpayers’ Union: the dropping of TVNZ/RNZ merger, and the “re-focusing” (i.e. delaying) of Three Waters. You’re welcome, Mr Robertson!
Is a return to surplus credible?
The Government is making a lot out of the projection that it will return New Zealand to surplus in 2024/25. But the economists we spoke to in the lock up agree that this is very optimistic. It’s forecast to be just a surplus and assumes no more shocks (such as weather events). It also assumed that, like every year’s budget, future governments will spend less on new initiatives going forward. If you believe that, I have a bridge to sell you.
Friend, join us tonight to discuss today’s budget with the NZ Initiative Think Tank.
In a few hours, our Chairman (former CEO of the NZ Institute of Economic Research) Laurence Kubiak, and I will be joining Eric Crampton and Oliver Hartwich from the NZ Initiative Think Thank to discuss the Budget and economic data released. To listen in, head over to our Facebook <[link removed]> or YouTube page <[link removed]> at 7pm.
Until then, we will have our head down continuing to work through the material. Our comments to media on the budget and individual initiatives are linked below.
Thank you for your support. For those interested, you can read the full documentation on the Treasury website here <[link removed]>.
Jordan Williams
Executive Director
New Zealand Taxpayers’ Union.
BUDGET 2023 — MEDIA RELEASES:
Two tax hikes and an LED light bulb. Nothing for middle New Zealand in this budget <[link removed]> <[link removed]>
So much for no new taxes <[link removed]>
Cost of living be damned! Fuel tax hike from July will hit lower income and rural New Zealanders hardest <[link removed]>
Grant's Gaming Gamble <[link removed]>
Government is greenwashing <[link removed]>
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