It’s a big bet and one that the central bank will be considering now – not simply waiting to see how the next few months pan out.
Prime Minister Christopher Luxon also upped the ante in post-Budget speeches yesterday with an optimistic and welcome focus on his vision for New Zealand in 2040.
That vision includes creating a more productive economy that encourages Kiwis to stay in the country, public services provided through a social investment lens and a comprehensive response to climate change.
After months of his continuing electioneering mantra (which has palled), it was a relief to hear more of the concrete steps the Government has under way to inspire business confidence, get investment moving and, (with business), grow the economy.
Despite the obvious expansionary nature of the Budget – there is some pain to go yet.
Revelations that Treasury officials advised ministers to tweak the Government’s tax policy to save costs and to delay the implementation of tax relief to October 1 – rather than July 31 - are no surprise.
That was prudent advice.
But Willis has been insistent that National would deliver on its full election pledge to give tax relief across the board.
That despite the fact that the coalition inherited a significant fiscal overhang from its predecessor and that tax revenues have declined sharply during the contractionary economic environment.
A quick call around the “Fran Club” on Thursday evening revealed considerable support for Willis’ Budget approach – but also misgivings.
It boils down to whether many would have preferred to delay any tax relief for themselves in favour of getting the Government’s books back into surplus quicker and the debt track under control at a much faster clip – and/or redirecting their own tax relief to those who need it more.
Here’s some rough and compelling maths.
The Budget rhetoric talks about the squeezed middle.
Many lower and middle-income earners will get a significant boost if they have families and some will benefit from a tweak to the independent earner benefit.
As Willis put it in her Budget speech.
“Analysis from the Treasury shows that an estimated 727,000 households will benefit by at least $75 a fortnight, and 187,000 will benefit by at least $100 a fortnight.
On average, households will benefit by $60 a fortnight, and households with children by $78 a fortnight.
“I have occasionally heard people say that tax relief only benefits the well-off. That is not true of this tax package.
“Our changes to the in-work tax credit, and introduction of Family Boost, tilt the benefits of the tax package to low-to-middle income working families with children.”
Here’s the thing.
Many – including myself – are among the estimated 876,030 people who will receive an annual boost via tax relief of between $1001-$1043 a year.
That’s based on 2022 data from the IRD.
That grosses up to between $876.9 million and $913.7m annually.
That’s a big chunk of change.
More than enough to have given a larger boost to lower income earners and the squeezed middle or to redeploy to boost the pay of frontline staff or deliver the promised next level cancer drugs.
Delivering such a result would have caused headaches for IRD - but with societal concern about social cohesion growing (particularly among women and Maori) - the failure of the Government to capitalise on the essential altruism many Kiwis have is a miss.
From my own perspective - that additional $20 a week is the equivalent of three double flat whites (Auckland prices).
Again this is a simple trade-off.
Here’s another. If a bigger emphasis on fiscal discipline by deferring and adjusting the tax cuts had occurred (as recommended by Treasury), the pathway to faster debt reduction and a return to surplus may have inspired the central bank to move faster on lowering the OCR.
That would have potentially reduced faster the pain which many are facing through high mortgage interest pain.
This is all in the realm of speculation now.
And there are good reasons for not taking austerity to the next level (yet).
But one thing is for certain, Luxon should now stop banging on about inherited fiscal cliffs and all Labour’s economic sins.
A final thought – with apologies to Kenny Roger - which the coalition could consider.
‘Every gambler knows, that the secret to surviving, is knowing what to throw away, and knowing what to keep.’
There will be some pivotal decisions ahead as Luxon and Willis step through the continuing tight fiscal conditions - at the same time as they develop the economy and grow confidence.
This week was a milestone.
But the coalition now owns the future.
