Budget 2005: Time For A Wakeup Call

On 19 May, Michael Cullen will present his sixth Budget. In recent years New Zealand Budgets have become more sleep inducing than inspiring, but this week’s Australian equivalent provided a sharp wake-up call for our politicians and policy makers. As has become standard practice a wave of pre-budget ministerial announcements means there won’t be many surprises when Dr Cullen makes his speech.

So far we’ve seen carefully choreographed announcements of more money for defence, police communications, conservation, drinking water, cataract operations, Maori radio, rates rebates, extending paid parental leave to the self-employed, music exports, film, and civil defence – a veritable mixed bag depending on your point of view.

On the revenue side we will be given yet another new tax, the carbon tax, although there’ll be tinkering to business taxation in order to reduce compliance costs and there’ll be initiatives to encourage work-based savings.

But one thing the Government doesn’t want to give us is some of our own hard-earned money back through lower taxes.

Each year there are excuses why hard-working New Zealanders don’t deserve tax relief. This year, we’ve been told that the government’s surpluses aren’t as big as their own financial statements suggest, that cutting taxes would only benefit the rich, and that tax cuts would overly stimulate the economy and force the Reserve Bank to lift interest rates to control inflation. The underlying message is that the state knows best how to spend your money and if you don’t like it you can lump it.

Sadly, plenty of highly skilled and motivated New Zealanders are ‘lumping it’ in favour of greener pastures across the Tasman – on average around 600 per week – and the news just out of Australia won’t help matters.

On 10 May Australian Treasurer Peter Costello announced in the Federal Budget tax cuts worth $21.7 billion coming on top of $14.7 billion of tax cuts delivered last year. These cuts will be delivered through a reduction in the base rate of tax and adjustments to income thresholds.

The Australian top rate of tax will still be higher than New Zealand’s, but from next year it will kick in at a lofty A$125,000. Compare this to our top rate which kicks in at less than half this amount and as a result is capturing an increasing number of middle income earners.

Mr Costello has stated that delivering tax cuts is every Treasurer’s dream, which begs the question: what does the New Zealand Minister of Finance dream about?

The Minister should be dreaming up ways that New Zealand can improve its competitiveness and its productivity. Continuing to stubbornly increase government spending and over taxing hard working New Zealanders is more likely to result in an economic nightmare.

The government must sit up and take notice – contain spending, cut taxes and stop the regulatory creep that is pushing up costs. It must ambitiously implement policies to improve competitiveness and increase productivity. That is what farmers want from this Budget.

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