The Do Nothing Budget of 2003
Weekly Column by Dr Muriel Newman
Do you remember the days when budgets were exciting? Evening meetings of people huddled around the radio or television - complete with invited experts to explain what everything meant. The public galleries in Parliament were packed. New Zealanders stocked up on petrol and booze just in case excise taxes were increased.
These days, budgets are
ho-hum affairs. Crafty governments now put up excise taxes
before the budget – getting the bad news out of the way! The
public galleries in Parliament are empty, and even the press
gallery is only half full. Budget pronouncements cover
three-to-four-year timeframes so it’s almost impossible to
tell whether the spending announced is new spending or just
last year’s spending re-announced.
This year even
the overall financial situation remains hazy – is it really
a $4 billion surplus or is it in fact a $1.3 billion
surplus? Having listened to the Finance Minister’s
explanation this morning, I don’t think anyone is any the
clearer.
The Minister started out his budget speech
crowing about a $4 billion surplus. Isn’t it ironic that,
like Tony Blair in the UK and indeed Bill Clinton in the US,
left-wing politicians come to power following the fall from
grace of free-market reformers (Roger Douglas and Ruth
Richardson here, Margaret Thatcher in the UK and Ronald
Reagan in the US), reaping the benefits of their economic
liberalisation programmes. This Labour government can claim
little of the economic growth that produced the surplus,
except for the fact that they did not reverse those earlier
reforms.
The reality is that since 1999, good
weather, a low dollar and an immigration boost have been the
drivers of our economy. The good weather was luck, the low
dollar was caused by a landslide in confidence when Labour
took office, and the immigration boost followed by a housing
boom was caused by a miscalculation of immigrant numbers by
the government.
The future does not look bright –
the drought, power shortages, SARS and international unrest
are all predicted to impact negatively on the economy. That
is why ACT New Zealand believes a prudent government should
look to emulate the Australian Minister of Finance, who,
when faced with a surplus, realised that it meant that his
government had taken too much tax and that tax cuts were
necessary to return some of the money.
ACT has
surveyed hundreds of thousands of people up and down the
country to find out what they think of government surpluses.
Overwhelmingly New Zealanders believe that some of the money
should be returned to those who made it. They think that a
government that is running surpluses is taxing people too
heavily, and the appropriate response should be to lower
taxes. Those surveyed believe the best option for lowering
taxes would be to follow the recommendations of the
government’s own McLeod Tax Revue – a bottom tax rate of 18
percent, with the top rate and company tax set at 25
percent.
Personally I like the regime in Colorado,
USA, where a Taxpayer Bill of Rights caps state government
spending at the rate of population growth plus inflation,
and requires immediate refunds of surpluses to taxpayers.
If this ‘over-taxation’ were returned to New
Zealanders, the average family would be $50 a week better
off – that’s a welcome $2,600 per household.
Thanks
to inflation, the number of people who now pay the top rate
of tax has risen from 5 percent of the population to 18
percent. As a small English-speaking country with a culture
that encourages young people to travel widely, New Zealand
cannot afford uncompetitive tax rates. In a modern world,
tax increases in our nation increase the supply of ambitious
New Zealanders in Australia and London.
In the
budget, the government announced it was going to allocate a
further $2.1 billion to the Cullen superannuation fund, to
be invested on international sharemarkets. Rather than
investing overseas at a time when the world economy is
looking decidedly shaky, wouldn’t it make far more sense to
invest it in New Zealand infrastructure development?
Using some of that money to invest in roading and
power generation, for example – in order to gain a secure
return on investment of around 7 percent and at the same
time removing some of our major constraints of growth -
would make far more sense than gambling the money offshore,
especially in light of the negative growth experienced by
the government superannuation pension fund. Next year’s
expected dive in growth to half our present rate is a
serious risk factor for our economy. A prudent government
would abandon its strategy of picking winners (such as
giving $34 million to the America’s Cup challenge while
leaving community sports to starve, especially once local
gaming proceeds are syphoned off to Wellington) and buying
votes as signalled for next year’s big welfare budget, in
favour of taking steps to position the economy to weather
the storm ahead.
Healthy tax cuts for businesses and
families, a massive reduction in the compliance costs that
are strangling small business, and welfare reform to ensure
that the unemployed are engaged in organised days of work,
training or job search, would transform our future from one
of uncertainty, at the whim of external forces, to one that
is firmly on a path to growth. I know which approach I would
take. Do you?