Diana Clement: Don't forget the stealth taxes

In the most basic sense, the Budget is a one-trick pony. You'll either have more or less in your pocket each week.

Chances are that many of the text-generation won't even know there has been a Budget this week and hordes of other people will have turned the page or changed channels when it hit the headlines. Should we care about the Budget?

The Budget is the Government's Robin Hood, taking money from one sector of society and giving to another. Its long-term aim, one would hope, is to improve the economy for all.

The health of the economy benefits everyone. Ultimately, the Budget affects us from maternity services to the grave, or beyond if you consider issues such as inheritance tax - which fortunately we don't have at present. It's not just the immediate effect of tax cuts or increases and Government spending that should get you texting.

"We live in a democracy and the Budget is the announcement to the shareholders about how the Government is going to spend our money in the coming year," says Consumers Institute chief executive David Russell.

Or in the words of Westpac economist Brendan O'Donovan: "The Budget is the Government and the Government is one-third of the economy. It matters enormously."

Believe it or not, New Zealand's tax system is relatively simple by world standards.

However, working out how you are affected by the Budget isn't straightforward. At the basic level, your next pay packet will show how any tax rate changes affect the contents of your wallet.

But when it comes to stealth taxes (GST, duties and excise taxes) on everyday goods and services such as alcohol, cigarettes and petrol, changes are only apparent if you analyse your spending. You can find out about them by telephoning Customs and Excise, but you won't find a list of them on its website. These hidden taxes kick in as we drive, shop, eat and live.

But it's not just stealth taxes on these items that affect the price. O'Donovan says the carbon tax will be passed on to consumers through higher electricity and petrol prices. Likewise, Mark Brighouse, chief investment officer at Arcus Investment Management, says cost increases in fuel can flow through into a vast number of goods.

As we get older, prudent fiscal policy will ensure that New Zealand's superannuation scheme and health budget can cope with an ageing population.

Even less apparent to the average person is the long-term Government spending on healthcare and superannuation - which, if you're a baby-boomer, will affect you in old age. While the Government is running a surplus, as it has been in the roaring economy, then spending can be channelled into these areas of future concerns.

Changes to taxation on investments can have complex implications for the positioning of assets. Investors can be directly and substantially affected by budgetary tax changes and smart or wealthy investors - especially those with large personal tax bills - will look to alter the spread of their portfolios.

Up until this Budget, Brighouse points out, passive funds such as the NZX's Mozy and Fonz funds that tracked the index had a lower burden of tax - meaning increased returns for investors - than managed funds offered through fund management companies.

Fund managers were, therefore, at a disadvantage when it came to justifying costs and returns of their offerings.

In the week before this Budget, rumours were circulating that tax thresholds would be lifted. When tax thresholds are moved up, then income earners can see an immediate effect if they are dropped into a lower tax bracket.

Brighouse says this type of Budget measure doesn't just affect those who are dropped into a lower threshold. It gives earners who are near the thresholds an incentive to earn more, without being stung by higher tax rates.

In 1999, Labour pledged that no more than 5 per cent of workers would be in the top income tax bracket. By this Budget, that number had doubled to about 12 per cent.

O'Donovan says New Zealand has a net weekly loss of 330 people (more than two fully laden 737s) across the Tasman, where they earn more and are taxed less - until they earn the equivalent of NZ$96,500. It is, however, in all of our interests to keep qualified people here.

The Budget has a direct effect on the state of the economy. In turn, the money raised determines what spending proposals can be acted on or which taxes can be cut.

These days Budgets are downright boring compared with some of the radical ones of the past.

The Muldoon and Rogernomics eras had their fair share of shock Budgets. But perhaps the two most notorious were Arnold Nordmeyer's Black Budget in 1958 and Ruth Richardson's Mother of All Budgets in 1991.

In 1958, then Labour Finance Minister Nordmeyer came to the conclusion that the country was on the brink of a balance-of-payments crisis and responded with unpopular measures including painful tax increases - especially on alcohol and tobacco. Three years later, the voting public turfed the party out.

Early in the Bolger years, Richardson's Budget made sweeping changes to the welfare system, healthcare, education and social development. It became known as the Mother of All Budget Cock-Ups - blamed for plunging the country into a recession.

Until recent years, election-year Budgets were seen as vehicles for buying votes. The trouble was, as Nordmeyer found out to his detriment, that the voters wanted what they had been promised. His Black Budget included extra taxation to pay for the promises Labour had made in the 1957 election campaign.