John Armstrong: Budget politically safe but economically timid

John Armstrong. Photo / NZ Herald

Politically safe, yet economically timid and fiscally vulnerable - that's the initial verdict on Bill English's second and perhaps most crucial Budget.

The finance minister has delivered a package of tax cuts of some magnitude which should be fairly easy to sell - at least to those voters currently leaning National's way. The package further cements the ruling party being odds-on to win next year's election.

It is no accident that the effective weekly tax cut hits double figures for wage and salary earners on $40,000, slowly rising from $10 to $40 at $100,000 and continuing to move skywards thereafter. This is where National harvests its votes.

There can be few complaints - beyond self-interested ones - at the Budget's crackdown on tax breaks in the rental property market and the rorting of the Working for Families income-assistance programme by the wealthy.

English could have been bolder. But by his standards he has been pretty bold, conscious of the impact of tightening rules on investment properties will have both on the tax cuts received by landlords and house prices.

He has also been bold by his standards in cutting company tax from 30 per cent to 28 per cent.

It is after that the Budget suddenly stops dead in its tracks. Those looking for the bright ideas and initiatives to galvanise economic growth are going to be hugely disappointed.

English might well cite the tax package as such an economic instrument. It certainly gives the highly-educated and highly-skilled greater incentive to stay in New Zealand. It should see a shift from debt-driven consumption to enterprise-creating savings.

Even the Treasury is unsure about the economic impact, cautiously predicting the tax changes could contribute 10,000 jobs to the total of 174,000 expected to be created by 2014.

But tax cuts are tax cuts. This is the replacement package for the cuts National had to postpone because of the global recession. It would be better to be upfront about it rather than have the package masquerading as something else.

These tax cuts are also a gamble - one English is (surprise, surprise) willing to take despite being ultra-cautious about most other things. While the Government accounts are now expected to move back into surplus earlier, the cash balance for next year is still in the red the tune of $9 billion, however.

In that light, English will be praying that the Inland Revenue Department and the Treasury have got their revenue predictions right in terms of how much money will flow into Government coffers from today's tax changes.

He will also be praying even harder that the world does not teeter back into recession as a result of the current debt turmoil,

To borrow from Oscar Wilde, to postpone tax cuts once could be seen as unfortunate. To have to do it twice might be regarded as carelessness.