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Budget 2010: Transtasman Tips On Budget 2010

Budget 2010: Transtasman Tips

Over the next 10 days in the lead up to the Budget Scoop will be publishing links to stories from New Zealand's leading political and economic subscriber tip-sheet Transtasman. To subscribe to Transtasman go to:

Tax Changes Fiscally Neutral - But Will It Damage Growth?
The Govt is insisting its tax package will be fiscally “neutral,” and at the same time, taxpayers will be better off, even after GST is lifted to 15%. A Sunday Star-Times report at the weekend speculated the new tax levels could be set at 10c, 19c and 33c, without any movement in the thresholds. This would mean someone on $40,000 a year would be $326 a year better off. Dropping the 38c rate to 33c would cost $500m, 21c to 19c around $780m and 12.5c to 10c, $820m, with total foregone revenue amounting to $2.1bn.

Budget To Blow Away Economic Uncertainty
AXA chief economist Bevan Graham says “we could look back on this year as the dawning of new age of prosperity, if the risks can be as successfully managed as the financial crisis was.” Govt strategists in the Beehive are not quite as bullish, but they reckon the Budget will reduce a lot of the uncertainty prevailing at present. Revenue Minister Peter Dunne has confirmed there will be lower tax rates “across the board.” Finance Minister Bill English talked this week of closing tax loopholes which allow around 10,000 households reporting investment losses on property and claiming Working for Families credits.

Early Signs Economy Is Shifting Its Focus
In the GDP figures for December, the Govt sees some early signs of the shift in the NZ economy it wants. A shift it believes can be accelerated by tax changes in the budget. Housing and consumption have not taken off as expected before Christmas, Govt administration has shrunk for the first time since 1999, while the manufacturing and exporting sectors are looking stronger. The IMF team which has just completed its annual check-up of the NZ economy supports the kind of tax reform shifting more of the tax burden from income to consumption.

English’s Budget To Tilt Economic Dynamics
In the budget next month Bill English may have to exercise the skill of a Jeremy Clarkson in driving the economy, putting his foot on the accelerator to speed up economic re-balancing, stamping on the brake in holding Govt spending. He’s got to avoid putting it into a tailspin and sliding into the ditch. The Govt is cautiously optimistic about the impact of higher commodity prices in stimulating the export sector, while savings rates are rising and consumption is relatively flat.

Govt To Turn Around State Sector Spending
The Budget is all but locked down, and Finance Minister Bill English concedes he is “happy” with the way major departments have buckled down to living within the cap of $1.1bn of new spending. It had been a big challenge to turn around the state sector spending “super-tanker,” but by re-prioritising programmes, and knocking some on the head, many departments, with a smaller allocation of “new spend” money, will be able to undertake new activities. In the process the departments have got a better understanding of cost drivers, and can see plenty of potential for getting better results within baselines.

Hold Down Inflation, Or Choke Recovery?
NZ’s economic recovery remains fragile, despite the commodity export boom (the ANZ says its NZD Commodity Price Index hit a new record high in April, with ten of the 13 commodities monitored rising during the month). As shown in the Crown’s financial accounts, corporate tax revenue is well below forecast, reflecting in particular how the small and medium business sector (at the heart of the NZ economy) is struggling for viability in current trading conditions.


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