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Sludge Report #171 - Budget 2006

Sludge Report #171 - Budget 2006

By C. D. Sludge

In this edition:
A Budget For Auckland (And Internet Users)
Bits Of The Budget That Aren't
The PR Problem Of Premature Announcement
And Finally….. Some Budget Snippets


A Budget For Auckland (And Internet Users)

NZ Finance Minister Dr Michael Cullen presents Budget 2006 to the media lock-up

With his lead budget headline stolen by a DPMC messenger – local loop unbundling, Finance Minister Michael Cullen faced only minimal questioning in the budget lock-up this afternoon as he delivered his 7th budget media lock-up presentation in the Beehive banquet hall.

Mind you having delivered a very long explanation in his presentation, there was arguably not a great deal left to find out. In fact as you look closely a fairly large chunk of the announced new spending in Budget 2006 is in fact related to initiatives the government campaigned on which have already been actioned.

On Scoop's Budget 2006 page you will find the innards of Budget 2006 announced, dissected and opined on in minute detail, however leaving aside the local loop unbundling plans, there are only actually two major elements in this budget, a gigantic transport spend-up and the seemingly perennial increases in health spending.

The transport spend-up - which adds the icing to a quadrupling of annual expenditure of roading under this Labour Govt - means that from 2008 onwards we will be spending as much money on roading as we do on defence, roughly $2 billion annually.

In short then this is a budget targetting Auckland motorists, (and internet users).

But having said that, even this latest increase in transport funding will probably not satisfy Auckland's insatiable desires for improvements to its transport infrastructure.

In practical terms all it actually means is that several projects that had been taken off the land transport programme due to a shortage of funds are now back on it.

Wellingtonians meanwhile are bound to cry foul over the fact that even with all this money for roads the Government is only promising to fund an "investigation" into Transmission Gully.

And as oil prices rise and capacity constraints in the road construction industry continue to bite several of these projects will probably fall back off the table.

Meanwhile as oil prices continue to rise there is inevitable some irony in the fact that as a nation we have chosen now to embark on the largest roading programme in NZ history.


Bits Of The Budget That Aren't

Dr Michael Cullen at the Beehive media lock-up earlier today

For his part Dr Cullen is not so quick to dismiss his budget as amounting to little more than a big roading spend-up. He told the media conference that there are also gains for education in his latest carve up of our taxes.

However a quick glance inside the figures finds that early childhood and school education is receiving $323 million over the coming four years compared to vote health's $3 billion.

Meanwhile tertiary education is slated to receive a $1.4 billion fillip over the coming four years which is sizeable. But when you look closer not actually new. The vast bulk of that is $1.029 billion (over four years) to fund interest free student loans, a policy on which the statutory ink is already dry. The remainder of the extra money for tertiary education is made up of some relatively small sums divided into several pockets, and is (possibly unfairly) characterised by the line in the budget summary document that reads:

$14.3 million to increase student allowance parental income thresholds resulting in a further 620 students being eligible….

Dr Cullen also notes that the Government's middle New Zealand family tax cut package – Working For Families - is also receiving a fair cut of the 2006 cake with $1.9 billion over the four year timeline.

This comes from a further raising of the abatement threshold from $27,500 to $35,000 and reduction of the abatement rate from 30% to 20%. Which sounds remarkably familiar, because it too has already been put into place having been promised during the election and since done and dusted.

During his presentation Dr Cullen put a nifty slide up on the projector that showed the cumulative impacts of Working For Families adding up to nearly $1.8 billion in annual tax relief into the pockets of 350,000 kiwi families (averaging $5412 each PA).

Not that anyone is likely to report this fact however as it is not in this year's budget, most of it was in the year before lasts and some of it comes from the election campaign. Which sort of illustrates a wider problem that Dr Cullen has been having with all of his budgets of late.


The PR Problem Of Premature Announcement

In response to this latest budget Scoop wanted to know of the Minister what the thinking was which led to so much of this year's extra cash finding its way into transport.

The answer which can be listened to at the beginning of the Q&A with Dr Cullen and the media can be summarized as saying that he has already done most of the other things he had in mind.

The centerpiece of this budget, 2006, is infrastructure and hence the focus on roading and broad-band internet (local loop unbundling).

The impact of the announcements made this year will continue for at least four years into the future. In much of the extra roading spending will not start till the 2007-08 financial year and by then it will be last years news.

Similarly Working for Families was announced in the 2004 budget but it is probably going to have its biggest impact on family bank balances this financial year and next.

All of this creates a considerable public relations problem for Dr Cullen.

If he announces initiatives already announced in future years he is accused of attempting to get the credit for his initiatives more than once.

If he fails to mention them as he did with Working for Families last year he looks as if he isn't actually doing anything, creating a vacuum into which a discussion of the absence of tax cuts flourishes.

This years budget is arguably the least interesting of all.

But then in truth that is not because Dr Cullen has not been busy. It is because he is if anything a little too well organized.


And Finally….. Some Budget Snippets

  • Budget 2006 includes $21million annually for Overseas Development Aid. This takes NZ's ODA contribution as a percentage of GDP from 0.27% to 0.28%. At this rate of gain the stated aim of 0.7% of GDP will be achieved in 2048.
  • Budget 2006's economic forecasts indicate we are headed for a slowdown. In the coming year Treasury is expecting unemployment to rise and employment to fall (mainly in terms of hours worked rather than loss of actual jobs).
  • Budget 2006's economic forecasts include an assumption (somewhat heroic) that house prices will increase by just 4% over the coming four years which prices falling next year.
  • Budget 2006's economic forecasts include the assumption that oil prices will remain stable at around or under USD$68 a barrel through till 2006 - however the price of oil is already averaging over USD$70 a barrel.

And last but not least…

  • While there is no room in the fiscal forecasts at present for tax relief between now and an election date in 2008 the government is continuing to proceed with its planned review of business taxation. In addition the Minister of Finance has taken the unusual step of publicly referring to the difference of opinion between IRD and Treasury over the likely future path of taxation revenue. Should IRD turn out to be right – and Dr Cullen said he hopes they are – then the prospect of tax relief at least for businesses will be back on the agenda.


© Scoop Media

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