Budget 2018: The ghost of Bill English

 

You might be forgiven for thinking that Bill English had already written the 2018 budget before he left office, and Grant Robertson simply read it out today. While it is tempting to describe Grant Robertson as Bill English in drag, we all know this is not the case. Tracey Watkins described it as a National-lite budget. As this government could never be described as National-lite, I can only assume that this was a lacklustre budget, deliberately designed not to frighten the horses, and possibly to gain a bit of credibility with the business sector. It won’t work, of course.

The biggest surprise was the size of the surplus, at $3.1 billion. Labour may constantly bang on about “nine years of neglect”, but no one can say the previous government didn’t leave things in good order.

Health Benefits

Yes, the health sector got the lion’s share of the available funding. But, as everyone knows, health is just a big hole to throw money into, and it is never enough. Here is a summary of the proposed new spending in the health sector:

  • Health receives $3.2 billion more in operating funding over the next four years and $850 million new capital – including $750 million to tackle some of hospitals’ most urgent building problems including funding for the design work for a brand new hospital in Dunedin.
  • Free doctors’ visits for everyone under the age of 14 – an extra 56,000 young people from the current policy. Extension of very low-cost general practitioner (GP) visits to all Community Services Card holders and extending the Card to all Housing New Zealand tenants and New Zealanders who receive an accommodation supplement or income-related rent subsidy. This will make going to the GP cheaper by up to $30 for the 540,000 people eligible for the Card.
  • Elective surgery, maternity services, air ambulances and the National Bowel Screening Programme are among the health services receiving extra funding.

All good stuff, but it won’t be enough, and it doesn’t deal with the understaffing issues or pay claims currently being sought by nurses. So what happens there?

Educating the masses

(Sorry, but I just couldn’t resist a picture of the Hipkins style of education.)

Education is the second biggest hole to throw money into. Here is an outline of their proposals for education:

  • New capital funding will build schools and hundreds of new classrooms. Operating funding for education over the next four years increases by $1.6 billion to address rising demand, fund 1,500 more teachers and raise teacher-aide funding. Early childhood education gets a $590.2 million operating boost over four years, benefiting over 200,000 children. A total of $284 million goes to Learning Support to allow every child with special education needs and learning difficulties to better participate in school life.

Again, the focus is on infrastructure, rather than on teacher pay claims – another thing that still has to come home to roost at some point.

Housing

  • Housing is boosted by more than $634 million in operating funds. We will increase public housing by over 6,000 homes over the next four years, provide more transitional housing and help for the homeless and offer grants for insulation and heating.

Excuse me while I have a good laugh. Is this 6,000 homes in addition to the 10,000 per year that Kiwibuild is building, or buying, or developing, or not building, or whatever? Apparently there are now a total of 18 of those in progress, in seven months. Are you seriously trying to tell me that you are going to build 45,982 houses in the next four years? Guess what? You won’t.

How do they pay for all this? Additional budget allowances over the next four years are more than $24b higher than the previous National government. This is funded by pushing out crown debt repayments ($9b), reversing National’s tax cuts ($7.9b), higher tax collection ($5.3b) and revenue from a fairer tax system ($1.5b).

Tax evasion

Yes. About that fairer tax system. IRD will receive a further $31.3m operating spending over the next four years to crack down on tax evasion. To be honest, I think this is starting to face diminishing returns. The cash society is becoming smaller by the day. Most of this money is to ensure outstanding company tax returns are filed. This is expected to net $183m in additional revenue. This figure is pie in the sky. IRD chase outstanding returns now. What? Suddenly, they have turned over a rock and found a heap more?

There is a further $3m of funding to analyse the potential to improve tax compliance in specific industries via possible withholding taxes. Last year IRD hit the IT industry with this, which was a bit of a surprise because most IT contractors pay their taxes. I can only assume it was a timing issue for them, but I spent a lot of time filling out applications for exemptions from the withholding tax requirements, and at least 70% were successful. In other words, this probably will not net the extra tax they expect.

But, there is this: recently announced proposals including the ring-fencing of rental tax losses look set to go ahead, with this expected to boost revenue by $325m.  The thinking behind this is to level the playing field between investors and home buyers by stopping the ability to offset tax losses from residential properties against other income. But this is a crock. Home buyers live in their properties, and it is a private matter. Investors are in business. Landlords are the most oppressed sector of the business world, and it is set to get worse. All it will do is to put more people on the street. Tenants, that is.

Horses for courses

The only new tax announcement is that the bloodstock tax rules will change so that investment in a standout yearling will be tax deductible if it has been acquired by an investor with the intention of breeding for profit, even if they are not already in a breeding business. This is intended to encourage new investment in the breeding industry. Thank you Winston. Glad you got tax benefits for your pet project.

Research and derangement

Tax incentives for research and development (R&D) have now been quantified as $1b over four years, giving eligible businesses 12.5 cents back for every dollar they spend on R&D. This funding will be available to all businesses spending more than $100k per annum on R&D.

Meh. The paperwork involved in this stuff is so bad, it isn’t usually worth it. I think they deliberately make it hard to get the tax credit so that people won’t bother to try.

There is nothing in this budget to stimulate business, or wages. And, in my opinion, this government are relying on sustained growth and more rosy economic activity over the next few years, which simply cannot be guaranteed. Both the world outlook and the domestic outlook are very uncertain. And no one can say that this government’s policies, so far, could be described as stimulating growth. Quite the reverse.

Of course, the elephant in the room here is tax changes. The government have deliberately avoided most of this because they are waiting for the Tax Working Group to come up with proposals. We all know what they will be. Capital gains tax, a higher top rate of income tax for rich pricks and possibly some form of wealth tax. It will not be good news for anyone trying to improve their lot in this world.

For now, we see the ghost of budgets past. All Grant is missing is a slimmer frame and a southern drawl. But, you wait. Next year it will be a very different story.


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Accountant. Boring. Loves tax. Needs to get out more. Loves the environment, but hates the Greens. Has been called a dinosaur. Wears it with pride.

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