It is hard to believe anything in the Budget today will have greater potential impact than the decisions already announced for the Auckland housing market. But there must be something in store for this afternoon that the Government did not want to be overshadowed by the steps it is taking to restrain house prices. It will most likely be something for children in the poorest households, a challenge the Prime Minister gave his ministers in the flush of election victory last year.
Since then the surplus he confidently expected during the campaign has evaporated and we are unlikely to see an across the board lift in benefit levels as advocated by researchers of child poverty statistics. But there is a case for tweaking the way benefits are set that could lift them all. It has long been an anomaly that benefits for the young are raised annually by the rate of inflation while superannuitants have their pensions pegged to increases in wages, or inflation if it is greater.
Wages in recent years have increased at a rate above low inflation, causing benefits to lag the general rise in living standards enjoyed by wage earners and the retired. The cost of indexing working age benefits to wages might be considerable but it seems only fair that it should be done. If fiscally possible, it should be accompanied by a catch-up adjustment to benefit rates over the next few years.
It ought to have been fiscally possible. The Finance Minister needs to find a better excuse than low inflation for missing his surplus target this year. Low inflation may have reduced revenue from incomes and consumer prices but it must have reduced the projected costs of state purchases too. Today's document may project a small sum in black ink by June, 2016. We will believe it now when we see it.
The economy has enjoyed strong growth for two-and-a-half years. If spending and revenue were properly balanced across cycles of economic expansion and contraction, the Budget ought to be in surplus by now. We are probably at the peak of the cycle. Dairy prices have fallen for a second season and farms are in the red. Two of our main markets, China and Australia, are at a low ebb. The United States is improving but Europe is still living on artificial stimulants. New Zealand needs to reduce debt in case of another international shock.