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Future Lefts - `Budget 2000'

Future Lefts - `Budget 2000'

Tuesday 20th June, 2000

[also available at http://www.younglabour.org.nz/flefts/000620.asp]

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CONTENTS
Editorial: Budget setting new directions
Budget: Outline
Budget: Grants better than tax breaks for R&D
Budget: Other documents available online
Overseas Aid Budget to increase
WINZ review – Rankin stays
News
New Future Lefts Archive
Web site of the week

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Editorial: Budget setting new directions

This isn’t the easiest of columns to write. The labour movement has waited twenty-five years to see a budget presented, which is longer than I’ve been alive. Kind of scary, really.

So the Budget was boring? Yes, it was. It was boringly predictable. It delivered on _every single_ promise that Labour put on the Pledge Card. By December 1 this year, every one of those pledges will be delivered on. Ahead of time. The promised increases for health and education are there. The mental health strategy will FINALLY be implemented, after years of Tory neglect. Tertiary tuition fees will be frozen, after ten years of constant increases (yes, started by us – but a very different us). There’s more cash for R&D and electronic government, to start turning the tide and building the new economy.

The document follows the March Budget policy statement in following six goals the Government set itself, which are to:

* develop an innovative economy which creates jobs and provides opportunities for all New Zealanders; * foster education and skills; * close the gaps that now divide our society; * restore trust in government and to promote a strong public service; * treasure and nurture our environment; and, * celebrate our identity as a people who defend freedom and fairness, enjoy arts, music, movement and sport, value our cultural heritage and who are committed to the Treaty of Waitangi.

It was also boringly orthodox in that it runs substantial surpluses over the entire course of the Government’s term. Nobody can truthfully say this is a tax and spend budget – though truth doesn’t stand in the way of some of our opponents. The share of Government spending in the economy is falling – boringly predictable. And totally taking the wind out of the sails of those boring commentators who thought they would be able to crucify this Government on the altar of excessive spending.

Yet, on another level, the budget wasn’t boring at all. For the first time in many years, we saw the beginnings of a commitment again to regional development. We saw a credible commitment to dealing with our superannuation problems – problems that get worse the longer they’re left. The Third Labour Government tried to solve those problems 25 years ago – and National stuffed it up as soon as they could. Maybe this Government’s legacy won’t be undone by the stupidity of the opposition, unlike that Government’s was. This will be considerably helped by the fact that those on the Opposition benches are going to be there for a very long time.

It was a good budget because it signalled a change of direction. If one can criticise it (and one can, because no budget could ever be perfect) then the problem is that it does too much, too slowly, without focusing to achieve rapid results. This is in total defiance of most political observers, and traditional thinking on how to use the budgetary cycle to political advantage. I look forward to seeing the strategy develop in future budgets – because this one is on the right track.

All the opposition can complain about in this budget is that it delivered precisely what it promised. They find that aggravating because they were incapable of doing the same.

Over the coming years as this Government matures in office, they will look back on this document as the foundation for what is yet to come. They’d better hope they’ve got it right :-)

The rest of this edition of Future Lefts goes through the budget in more detail, and then goes on to a few other issues of the last week or two. It’s fairly long – apologies for that, but it is the Budget issue after all!

Till next week,

Jordan

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Budget: Outline

This comes from http://www.labour.org.nz/budget/b2ksum.html and is designed to just give some outline of just how broad the budget actually reaches.

Closing the gaps

It is in the interests of everyone in this country that we move to close the gaps that have opened up between Mäori and Pacific peoples, and other New Zealanders. We cannot get ahead if a significant proportion of our people get left behind, trapped by poverty, entrenched unemployment, low educational achievement and poor health and housing. Budget 2000 faces the challenge of giving all New Zealanders a chance to participate.

Capacity Building

Funding of $29.1 million in 2000/01 across a range of votes for capacity building, which means giving Mäori and Pacific communities the capability to devise their own economic and social programmes Whanau, hapu and iwi groups will get $20.4 million over four years to strengthen their development as providers of job services Te Puni Kokiri to receive an extra $11.6 million over the next four years to monitor social policy programmes for Mäori

Education A commitment of $19.9 million over four years to strengthen the quality of Mäori language education $12.9 million to improve Mäori teacher supply both in mainstream and kura kaupapa schools $11.2 million on programmes like mentoring schemes to help young Mäori participate more fully in the school system Funding of $7.2 million over four years for increasing the Pacific Pool of the Discretionary Grants Scheme, which will provide extra places in Pacific early childhood centres

Health and Housing $20 million over four years for smoking cessation programmes aimed specifically at Mäori The $55 million being allocated in 2000/01 for income-related rents for low-income state tenants will contribute to closing the gaps (as outlined in Trust in Government headsheet)

Economic, community $20.8 million over four years on Mäori economic and organisational development, which will include developing local partnerships to create job opportunities Pacific Peoples’ Organisational Development to receive $7.1 million over four years to help with administrative skills, leadership training, IT and infrastructure development $10 million over four years to fund initiatives developed by Mäori communities aimed at reducing Mäori youth offending

Developing an innovative economy

Budget 2000 contains a suite of measures to assist business and regional development, to add knowledge to New Zealand's productive base and to unlock the potential of e-commerce. We want to develop an economy which adapts to change and increases the employment opportunities and incomes of all New Zealanders.

Economic Development New funding of $331.875 million [including GST] over the next four years. Industry and regional development will receive $33.750 million in Year One, $73.125 million in Year Two and $112.50 million in Year Three and subsequent years. An additional $3.375 million a year to the Ministry of Economic Development for policy advice on economic development. New embassy in Brazil.

The Knowledge Economy Over $43 million in Year One for research, science and technology, including a record $20.8 allocation to encourage R&D in the private sector. More than $11 million over the next four years to promote e-commerce. $9.5 million over two years for Trade New Zealand to improve its online services for exporters. [Announced 19 May] Funds to promote export education. [Announced 23 May] $400,000 over four years to strengthen consumer protection on the net. [Announced 9 June]

Employment $21 million in additional funding over four years to buy vocational services for people with disabilities. $25 million over four years to help the unemployed gain work experience. $28 million over 4 years on Mäori and Pacific Island employment initiatives. [Detailed in the 'Closing the Gaps' package.]

Fostering education and skills

The Government's goal is to ensure that all New Zealanders have the best possible chance to develop their potential and to equip themselves to meet the demands of a fast-changing world. Increase in education spending for the coming year of almost $300 million on pre-election levels, including $200 million on new initiatives. Early childhood education boosted by around $10 million a year. A huge increase in operational and capital funding for schools. This is the largest ever school property programme to meet roll growth and upgrade existing schools. $23 million over four years for literacy and numeracy recovery programmes. Up to $2 million a year for homework centres. $400,000 to establish an Education Council responsible for teacher registration and staff standards. [Announced 30 May]

Post-compulsory education and training $664 million over four years invested in tertiary education. $32 million over four years to improve access for beneficiaries to the Training Incentive Allowance. $3.9 million over four years to boost the number of Mäori and Pacific Island students. $3 million of reprioritised funding over four years for Student Job Search. $42.2 million over four years to fund Modern Apprenticeships. $12 million over four years for school-to-work initiatives. An extra $23 million over four years for the Industry Training Fund.

Trust in Government and strong social services

The Government has moved already to restore the 65 percent wage relativity for New Zealand Superannuation, lower the cost of student loans and restore income-related rentals for low income state house tenants. These were all key policy commitments and we are determined to rebuild faith in the political process. We are also committed to rebuilding the capacity of the public sector.

Health $412 million more to health in the coming year. Additional funding of $257.4 million over four years for mental health. A $74 million increase each year for the next four years for elective surgery. $10 million annually over next four years for disability support services. $20 million over the next four years for Mäori smoking cessation initiatives.

Housing $257.6 million over 2000/01 to 20002/03 to fund the restoration of income-related rentals. More than 40,000 households will get increased assistance averaging around $40 a week. (also included in Closing the gaps headsheet) $357.7 million in capital costs over 2000/01 to 2002/03 to maintain state housing stock and increase it over time in areas of high demand. $28.7 in 2000/01 to Community Housing Limited to buy and modify 120 new properties.

Social Welfare $36 million in 2000/01 increasing to approximately $40 million by 20003/04 for the Department of Child, Youth and Family Services. The standard $5 deduction from the Special Benefit to cease from 1 July. [Announced 25 May] Childcare subsidy hours raised in 2000/01. [Announced 25 May]

Law and Order $22.12 million in 2000/01, increasing to $23.56 million in 2002/03 and out years to reduce youth offending. $3.234 million increase in funding each year to Police for youth justice initiatives. $4.955 million over the next three years for restorative justice. [Announced 11 June] $14.18 million over the next three years to crack down on burglary. [Announced 6 June] $5.701 million over three years for the Victims' Rights Package. [Announced 12 June] $27 million in 1999-00 and $52 million in each of the following years to maintain a high-quality Police service and to compensate Police for reductions in other revenue. $152 million over four years for road safety. [Announced 8 June]

Corrections $4.245 million extra each year for prison education services. [Announced 16 May] Additional $905,000 each year for Tikanga Mäori programmes. [Announced 16 May] $400,000 increase each year for the Ministry of Women's Affairs to maintain long-term policy capability. [Announced 29 May] $455,000 to assist the voluntary sector to celebrate the United Nations' International Year of Volunteers. [Announced 25 May] $1.125 million a year to not-for-profit organisations providing family violence prevention services.

Nurturing the environment

New Zealand's clean, green environment must be maintained. It is important not just to the quality of life of our citizens but also to our image overseas and therefore to our tourism trade and to our export markets, especially for food.

Biodiversity: $187 million New Zealand Biodiversity Strategy announced 8 June.

Energy efficiency: $3 million a year funding boost to the Energy Efficiency and Conservation Authority. The new money virtually doubles the Authority's budget, taking it to $7.1 million a year.

Climate change: An extra $2.3 million a year for work to enable New Zealand to ratify the Kyoto Protocol.

Public transport: The annual expenditure "cap" of $46.2 million on public transport will be lifted.

Celebrating our identity, defending freedom and fairness

This Government intends to celebrate our identity in the world as people who support and defend freedom and fairness, who enjoy arts, music, movement and sport, and who value our cultural heritage.

$146 million arts, culture and heritage package. [Announced 18 May] $16 million for high performance sports. [Announced 17 May] $5 million for the 2003 America's Cup defence. [Announced 10 May] New funding for Sport Education Scholarships. National Archives removed from Internal Affairs and made a self-standing department. [Announced 19 May] New funding signalled for Defence Force capital equipment upgrade. $3 million for National Library for new purchases and improving electronic access.

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Budget: Grants better than tax breaks for R&D

The business community has noted with some anger that tax breaks for research and development which were foreshadowed in the 1999 Speech from the Throne ("My government will change the taxation regime to ensure that it is more favourable in its treatment of research and development costs.") have now been put on the sidelines.

Future Lefts has investigated this issue. First, the Minister for Research, Science and Technology (Pete Hodgson) made the following comments in a speech on Tuesday night:

"The grants scheme will focus on increasing the general level of private sector investment in research and development in New Zealand. It can help firms that have basic competencies in technological innovation, particularly small, medium and start-up businesses. It’s a one dollar-for-two scheme. The Government will grant one third.

"We’ve come in for some stick over this. I want to explain our decision as follows.

"In New Zealand all research, or science as the tax law cutely labels it, is immediately expensible. But only development in the revenue account is treated that way. Development on the capital account must be depreciated. So the tax break still arrives, but later. It is there that New Zealand is different, and that is what led to our pre-election policy.

"The problem that officials have is deciding how to both draw and enforce the line between development and the rest of business. Australia has 46 pages of law and a special board to manage that. If we mismanage that, the cost to the Crown could be high indeed. More importantly, the cost comes without any certainty that the money goes where it's needed. You can't be sure how much of the "development" being expensed is genuine. It is therefore low quality spending (or tax breaks), not high quality.

"Hence the grants scheme, capped at $100,000 per business, for new expenditure only, but open to all enterprises. If the money gets spent, we’ll increase it. But if the money gets spent then private sector expenditure on R&D will have increased by 10 percent. And we will have reached young companies who couldn't get an immediate tax break because they are not yet in profit.

"If a business receives a grant, the effect is the same as a tax break for capital account development of 100 percent. For all other R&D expenditure it rises to 150 percent. Please think on that.

"Two more things. The first is that we don’t believe we have the franchise on wisdom on this. The grants scheme will be kept under review – permanently. Work on what we might do in the future on tax deductibility, or accelerated depreciation, continues. Your feedback, to me, to Michael Cullen, to the Deputy Prime Minister, or to the Prime Minister, is welcome, as is any advice you wish to offer SIAC.

"Last point. This policy is about R&D, not taxation. The taxation issues of this country will be addressed in a separate review, the results of which will be taken to the 2002 election. This policy was to answer the question "how can the Government best support and increase private sector R&D investment". It’s the first time any Government has seriously asked that question. We did. We are engaged. Our answer is the grants scheme. It starts on 1 September. We have our own R&D to do on this issue, and we will do it as the months go by."

Other business commentary has applauded the Government’s decision. PriceWaterhouseCoopers, in a post-Budget statement (off http://www.pwcglobal.com/nz), said:

"We think the Government was right to back off the proposal to introduce a special rule to allow a write-off of 100% (some were asking for more) for research and development expenditure. Based on the Australian experience this measure would have been incredibly expensive to administer and fiscally very expensive. At an extreme level it results in a 100% write-off for major fixed assets such as technologically efficient buildings.

"There is a good deal of misinformation around about the tax treatment of research and development expenditure under existing rules. The bottom line is that the majority of R&D expenditure is deductible either under the general deductibility rules, or under the special provision relating to scientific research. Only at the margin is R&D expenditure not deductible. Further, the write-offs available in relation to computer software development are reasonably generous relative to other countries, and it is hard to rationally justify substantial additional tax relief in this area.

"The R&D grant proposal will be criticised due to its modesty. The amount allocated annually, $12 million, certainly seems minuscule relative to the $180 million recently granted to the Arts. However, in principle if the Government is to confer benefits or subsidies on those who undertake research and development, a grants scheme is likely to be of more assistance than a tax write-off. Businesses engaging in start-up technology operations will normally expect losses in the early years, so additional tax write-offs is not what they need. Cash assistance should be of assistance, although in practical terms will be clawed back in part through reduced depreciation allowances, and through tax on dividends ultimately paid out to shareholders."

So it is simply evident that the Government is prepared to rejig pledges if a better way can be shown to achieve the desired outcome. Businesses have no reason to complain over this minor change.

Jordan

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Budget: Other documents available online

Some other budget documentation is available online.

The main Budget site on the Executive Government server is at http//www.executive.govt.nz/budget2000/. You can find there all ministerial releases, and the Budget speeches.

The other place to find information is at the Treasury's web site. http//www.treasury.govt.nz/pubs/bmb/budgets/2000/toc_bud.htm contains all the official publications and tables from the Budget.

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Overseas Aid Budget to increase

New Zealand is to boost its overseas aid by 6.5% during the coming year, Associate Minister of Foreign Affairs and Trade, Matt Robson said today.

This year’s allocation of $226.5m represents 0.27% of GNP and a $14m increase since the 1999 Budget night figure.

"The increase, which includes a new $2 million allocation for East Timor, is a result of pre-election promises from both the Alliance and Labour, that the Overseas Development Assistance budget should be increased," says Matt Robson.

"Our programme remains strongly focused on the South Pacific, where New Zealand has its closest ties and a track record of effective aid delivery. Most of our effort will go into education and training, health and good governance.

"We are also responding to the vulnerability of South Pacific ecosystems through our environment initiatives, and we are encouraging full participation by the private sector and NGOs in development", he says.

"There are new challenges for the ODA programme, including shaping effective and appropriate responses to ethnic conflict in the Solomon Islands and to the Fiji constitutional crisis.

"Higher allocations for key United Nations and Commonwealth agencies recognise what these agencies do to support development.

"Non-governmental organisations will get a bigger slice of aid expenditure in the new financial year, because of the active and valuable role they play. Volunteer Service Abroad, the Voluntary Agency Support Scheme, the Council for International Development and the Development Resource Centre will all benefit from the increased ODA budget," says Matt Robson.

One of the problems with some of New Zealand’s ODA is that it has gone to help third world countries to "restructure" – that is, it has been used to force IMF style structural adjustment policies onto countries in our own back yard. I suspect Mr. Robson is aware of this and plans to change it. New Zealand aid should be untied, and should not be used to enforce western models of development – which even the West is now turning away from! – onto other cultures.

Jordan

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WINZ review - Rankin stays

An increased focus on employment and greater regional flexibility mark a new beginning for the Department of Work and Income, says Social Services and Employment Minister Steve Maharey.

"Increased local flexibility is expected to bring a significant change in the Department’s approach and culture," he said.

Mr Maharey was delivering the Government response to the Department-specific aspects of the Report of the Ministerial Inquiry into the Department of Work and Income (the Hunn Report). State Services Minister Trevor Mallard will release the Government's response to the public service-wide issues raised in the report next month.

Mr Maharey said the Department of Work and Income purchase agreement and the Chief Executive’s performance agreement would together reflect the Government’s expectations of the Department, in particular to:

* Strengthen external relationship management * Increase employment focus * Increase local flexibility of the Regional Commissioners * Have systems, processes and structures in place both regionally and nationally to support the regional flexibility and decision making.

"This is the start of a fundamental change for the Department.

"A line is drawn under the first 18 months of the Department of Work and Income. Now we move forward.

"The increased regional employment focus, moving the Community Employment function to the Department of Labour, improved services to Mäori and Pacific people, and a more responsive organisational and public service culture add up to a significant new start.

"The Department of Work and Income, in consultation with the State Services Commissioner, will want to consider how the internal configuration of the Department can best contribute to the increased employment focus the Government is expecting.

"These changes, together with the Government’s employment policy and planned changes to the delivery of social assistance, provide the Department of Work and Income with the focus it needs to deliver employment and social services results for the Government.

"The Chief Executive and senior managers of the Department are working constructively with other agencies to the direction I have set for the Department of Work and Income," Steve Maharey said.

Christine Rankin was hauled over the coals tonight on Holmes about the report. Paul Holmes seemed obsessed with Mrs. Rankin’s earrings, and kept asking her whether they were going to change. Mr. Holmes also admitted he had been confounded by Mrs. Rankin’s appearance, which was in a demure grey suit. Paul Holmes apparently expected something rather more flamboyant, though we note that the obligatory dangly earrings were clearly present. We thought Mrs. Rankin might well have told Paul Holmes that the reason the public seems obsessed with her earrings is that because of his unnatural curiosity in them, but she didn’t appear to have thought of saying this before the interview ended.

We have been very critical of Christine Rankin in the past. It remains to be seen whether or not she will perform. The Hunn Report sets out clear guidelines for her to follow, so we anticipate no problems. But if next year’s student loans cause anything like the problems this year’s ones did, we will be calling for her head to roll again.

Jordan

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News

Of course the news of the week was the annual budget. No more will be said, you can read the rest of the jolly newsletter. Some brief comment on the opposition response is necessary though, it was simply too funny. Wyatt Creech was in typical twattish form, blustering through a speech that opened with some odd comments about Jenny Shipley’s illness and the electricity reforms - suprisingly neither of these were actually significant features of Cullen’s budget. Unfortunately for the right, it went downhill from there. By the time Richard Prebble slithered out of his seat, the entire National Party had left the chamber, and even Rodney was finding it difficult to hold a convincing chuckle to each comedic gem that his leader forced upon us.

Jim Anderton on the other hand was in fine form, delivering a robust response to the opposition’s whining. And why not? He would have been in fine spirits after the promising noises that the government has been making about his ‘People’s Bank’ over the past week. It would seem that cabinet has given an informal thumbs up, and that talks with NZ Post are well underway.

The government’s defence framework was unveiled this week. Following up earlier statements from the Minister of Defence, Mark Burton, and the Prime Minister, it would seem that spending priority is going to be given to things that we need, such as the replacement of ageing army equipment, rather than the penile-extension like F16’s that Mr Max Bradford was so obsessed with.

George Speight’s ego-trip continues in Fiji. The military government now has gained a degree of legitimacy following a ruling from the Chief Justice which upheld their authority. Generously, Speight has conceded in his talks to the military that he does not want to play an active part in the governemnt that is formed out of the ashes of this entore debacle. Unbelievably, he climbed on to his moral high-pony to claim that it would be wrong for him to force himself on to the people of Fiji by playing such a part! What a consistent fellow.

On a slightly less weighty plane, New Zealand Olympian Mark Todd has seemingly been caught out in the British Tabloids for doing naughty things with saddles and cocaine. Future Lefts finds the whole idea of banning Todd from the team for Sydney to be rather funny, after all it seems a little unlikely that being loaded while riding a horse is terribly likely to improve one's performance - if, in fact, he was - which we do not for a moment believe.

Michael Wood.

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New Future Lefts Archive

Future Lefts is slowly being transferred to the Young Labour web site. Each issue goes up the day after it is sent, and we are transferring the old issues to the web site at the rate of approximately one a week.

The archive is at http://www.younglabour.org.nz/flefts.asp.

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Web site of the Week: http://www.guardianunlimited.co.uk/

This is the Guardian newspaper, a left wing British daily. Good window into contemporary soft left thinking in the UK today. The newspaper is generally a Blair supporting one, but we won’t hold that against them :) If you are interested in keeping up with news on how the Blair government is doing, then this is one place to go.

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All submissions should be to the editor, Jordan Carter, at carters@ihug.co.nz, or the assistant editor, Michael Wood, at michael@semrits.co.nz.

While this newsletter is published in the name of Young Labour, the contents is entirely the responsibility of the editor and the views expressed here don't constitute any official position of Young Labour. All contents copyright (c) 2000. Subscribe at younglabour-subscribe@listbot.com

Te Wairua Hou - The New Spirit http://www.younglabour.org.nz


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