Joyce maths peanuts to Trump’s
If you thought New Zealand’s Budget was exciting, wait till you get a load of the American version. Okay, if you really thought the New Zealand Budget was exciting you have a very low threshold for these things. You should probably get your heart checked.
But US Federal Budgets are always much better theatre than our variety.
And this year it’s Donald Trump’s Budget. It’s going to be the WWE Wrestlemania of fiscal policy debates.
This one matters outside of the US, too, at least if you follow Wall Street’s ups and downs. Even if you don’t, the fund manager looking after your KiwiSaver account sure does.
Wall Street investors have bet big that if Trump can pass a Budget with tax cuts and increased spending he will supercharge the recovering US economy.
Whether these two contradictory policies will be sustainable and good for the economy long term is another matter.
The markets take a fairly short-term view. When Trump is on the back foot, as he was last week when the hysteria around the James Comey scandal peaked, they are prone to dramatic slumps.
It’s to be hoped the markets have been smart enough to price in the scale of battle about to go down in Congress.
Those who were watching on Thursday will notice a few key differences between us and the US. Not least are all the extra zeros involved.
Finance Minister Steven Joyce outlined some $80 billion worth of spending, Donald Trump has about US$4 trillion to play with. He plans to slash about US$1tr out of social spending over the next 10 years from Medicaid, food stamps and other anti-poverty programmes.
Meanwhile, he’ll boost defence spending by about 10 per cent, as well as spending more on infrastructure and cutting taxes. His proposals would see corporate tax slashed from 35 per cent to 15 per cent and the top personal tax bracket cut from 39 to 35 per cent.
Trump’s Budget makes big assumptions about the improved economic growth tax cuts will bring and factors them in — rather than planning from a more neutral position.
That’s an ideological assumption about the power of low taxes. But even from a right-wing perspective it seems to be a dangerously optimistic position.
What really worries many economists is his Budget double-counts the assumed benefits of that faster economic growth: it counts them once to offset the effects of lower tax rates on government revenue and a second time to help close the Budget deficit over the next 10 years.
Basically, it’s accounting built on hope. White House officials have described critics as pessimistic.
This would be pretty scary stuff if it wasn’t for the other key difference that makes US Budgets so much fun — they are very difficult to get passed into law.
Barrack Obama struggled nearly every year he was in power to pass his Budgets. The stand-offs were so bad that in 2013 the US Federal Government was forced to shut down for nearly three weeks while he haggled and bargained.
Trump has to have his Budget passed by September 30 and has already warned that he’s prepared to see the Federal Government shut down if it doesn’t get there.
Obama had a good excuse for his Budget woes, he didn’t have the numbers. He was a Democrat and the Republicans controlled Congress.
Trump’s a Republican. In theory his party controls both the House of Representatives and the Senate. If this was New Zealand the Budget would sail through. But no one expects it to.
The draft Budget was “dead before the ink was dry”, according to Republican representative for Alaska Don Young.
Kentucky Republican Hal Rogers described the proposed cuts as “deep and harmful”.
Meanwhile, John McCain, the so-called moderate Republican who has been championed by many for standing up to Trump, slammed the Budget for not going far enough to boost military spending.
Other Republicans complained the social welfare cuts didn’t go far enough.
And these are just the divisions within his own party.
There are plenty of things for liberals to dislike.
Funding cuts for the Department of Justice and funding boosts for Homeland Security play into dystopian fears.
There are big cuts to education and environmental protection.
These departments do provide a reminder that daily life for Americans is largely run by their State Government.
Education, for example, represents something like 18 per cent of the New Zealand Government’s Budget spend, whereas the US Federal Budget for education is just 1.5 per cent of the total spend.
That’s because in the US education is largely administered at a state level.
There are representatives on America’s far right who don’t think there should be any federal money spent on education.
In this context, Trump’s Budget isn’t terribly radical, it’s just terrible.
But it is also just the starting point for a negotiation that will see it beaten into shape over the next four months.
The complicating factor is the extent to which Trump’s administration gets distracted and bogged down in scandal.
For market watchers the difficulty will be identifying which part of the madness is traditional Washington politics and which part is unique to Trump.
With Wall Street stocks back near record highs it seems they’re taking an optimistic view — for now.
Trump’s Budget accounting is built on hope. White House officials have described critics as pessimistic.