Claire Trevett is the New Zealand Herald’s deputy political editor.

Claire Trevett: Dishwater-dull Budget cleans knife for tax cuts

Election bribe will fail if Key can't convince voters they want it.
Budget 2016 was a miserly affair. Photo / Guy Body
Budget 2016 was a miserly affair. Photo / Guy Body

At first blush, the Government's list of its top four fiscal priorities looks rather as if it was decided by way of an arm-wrestle contest between Finance Minister Bill English and Prime Minister John Key. In that, English apparently won three and Key won one.

English's three all relate to paying off debt. Key's is the "beginning to reduce income taxes" one.

Opposition MPs have attempted to make it look as if the Prime Minister and Finance Minister are at odds over the issue of tax cuts. After all, for eight years now English has been like the Little Engine That Could grunting his way up a hill puffing "I think I can, I think I can", only to reach the peak and see the Prime Minister merrily shovelling his surplus into tax cuts.

It is a routine that Key and English happily buy into - a good cop, bad cop thing. But reports that the pair were conflicted are wrong.

The two may have very different backing music but they are singing from the same song book.

A clue as to why could be found in Labour finance spokesman Grant Robertson's speech on the Budget, in which Robertson hopefully proclaimed it was English's "penultimate Budget". English wants a legacy of healthy economic stewardship, but he wants a fourth term as well. He is also National to the core and National supports tax cuts. If English can deliver, he will.

If there was any doubt, it came when English and his associate finance ministers took to the stages for the ritual post-Budget breakfasts yesterday morning. English suggested the Government could pay off debt more slowly so it could offer the tax cuts - easing his messaging forward a smidgen more than before the Budget. That could mean he forsakes his primary fiscal goal of paying debt down to less than 20 per cent of GDP by 2020.

Both will insist they can afford it. Key and English readjust Treasury forecasts to suit their mood. Key is already disavowing a forecast slump in net migration, back from the stratospheric heights of more than 70,000 later this year to 12,000 by 2019. In that respect, this week's Budget was akin to a gardener using the winter to compost and hibernate his garden bed so it bloomed more magnificently in spring. "We could have whiz-banged you, you know," Paula Bennett said.

"It's always something we talk about, but we saw real need in real areas like upskilling, investment in our regions, in our hospitals."

The 2016 Budget is effectively insurance for 2017. There were no fancy "whiz-bangs" to distract from the surplus and debt forecast figures, which were allowed to shine. There was a larger-than-expected boost for health, enough to ensure the Government could defend its record. What was left was spread around like a scraping of Marmite rather than lashings of jam, but there was something for the regions and things like the SuperGold Card to avoid revolt.

The Government did not need to win any votes from the Budget - it just needed to ensure it did not lose any.

The area in which National risks losing its no-claims bonus on that insurance is housing. It went into Budget Day on a housing-related storm and woke up the day after Budget Day still in the grip of that housing hangover. Migration is one cause of that hangover as returning New Zealanders and new immigrants load up the pressure in Auckland. At his own post-Budget lunch, Key himself said housing was "certainly not the easiest problem the Government has to deal with".

The Government did not need to win any votes from the Budget - it just needed to ensure it did not lose any.

There is now as much attention on the homeless as the first-home buyers, those who do not have homes despite the Government's much proclaimed social housing programmes and widening of eligibility for income-related rent.

Resolving the social housing mess will be Paula Bennett's biggest test. News the day after the Budget that a major deal to sell state houses in Invercargill to a private provider had fallen through was not what the Government needed. English and Bennett have downplayed it. But that came days after Bennett had to scramble together a mini-package of measures aimed at homelessness on the eve of the Budget. If it looks like a mess and smells like a mess, it is a mess. Downplaying the problems and trash talking Auckland Council is not enough to get them off the hook.

The Budget carries other dangers for National. The "social investment" approach it has taken is innovative. It is key to National's programme and driven by Bill English. National has sunk billions into it. But it also risks spreading some resentment among middle New Zealand. In this Budget, the targeting of all extra operational funding to schools which cater to the most at-risk children risks leaving many schools with no funding increase at all even to cater for inflation.

That funding will be allocated based on estimates of how many children in a school are "at risk", regardless of the school's location or decile, but it is inevitable that low-decile schools will get significantly more. If things reach the point parents feel their own children are missing out at the expense of other people's children or they are having to subsidise the schooling of others through increased donations, this could backfire on the Government.

Given such pressures, it may have looked as if Key had developed a sudden rush of blood to the head when he raised the possibility of $3 billion in tax cuts. In the short term, Key's mission appears to be to convince New Zealanders they actually want tax cuts. This year's more modest tax cuts were cancelled partly thanks to lack of demand. An election bribe is of little use if voters do not want it. Key is relying on economic conditions doing some of that work for him - inflation is forecast to creep up in time for the election campaign next year. That will put further pressure on people's budgets. Key was also getting in some pre-emptive marketing work.

Budget 2016 was a miserly affair. Without any sign something more exciting was ahead, the Government would today stand accused of third term-itis and of having run out of ideas. Admittedly tax cuts are not exactly cutting-edge thinking. A government can be accused for not indulging in visionary thinking in economic hard times when the focus is on survival. But with surpluses tootling up to $6 billion by 2020, there is no excuse. It may well be time for tax changes to address bracket creep, but if tax cuts are the best Key can come up with by way of post-2017 vision the accusations of third-termitis may well be warranted.

- NZ Herald

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Claire Trevett is the New Zealand Herald’s deputy political editor.

Claire Trevett is the New Zealand Herald’s deputy political editor and joined the Press Gallery in 2007. She began with the Herald in 2003 as the Northland reporter before moving to Auckland where her rounds included education and media. A graduate of AUT's post-graduate diploma in journalism, Claire began her journalism career in 2002 at the Northern Advocate in Whangarei. Claire has conjoint Bachelor of Law/ Bachelor of Arts degrees from the University of Canterbury.

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