Shamubeel Eaqub
The grim reality of house prices
The 2017 Budget is designed to be an election winner. It splurges cash on workers through tax cuts and sprays money on most areas.
What it missed was an aspiration to tackle big issues – gradualism remains the central tenet. There was no sense of urgency, and perhaps that will suit the voting public. To me, the Budget was as expected and a missed opportunity to chart a course for significant investment in New Zealand’s physical and social infrastructure, and enterprise.
I yearn for some urgency in public policy. To quote Martin Luther King, I want ‘‘the urgency of Now …This is no time to engage in the luxury of cooling off or to take the tranquillising drug of gradualism. Now is the time to make real the promises of democracy’’. The real promise of democracy is looking after everyone, including future generations, renters, the poor and the environment. Budget 2017 is hard to criticise harshly, because it does some things, but without much ambition and scale.
The biggest handbrake to truly investing in the future of New Zealand appears to be a cultish aversion to debt – as if the borrowing would be misspent.
The Government’s aversion to debt is surprising in the current era of low interest rates, its already low borrowing level compared to global peers, and a significant need for long-term investment projects that will boost future economic growth and tax revenue.
As an example, investing in the New Zealand Super Fund through borrowing, rather than cutting off contributions, would have been
Increased spending on areas such as health and welfare is welcome after years of restraint.
better, because borrowing costs have been low and market returns high. In net, the Crown would have more wealth.
The story is surely the same with unblocking infrastructure and housing shortages. But the Government would rather pay down debt to create resilience – a very narrow, accounting and unambitious perspective.
The big centre-piece of the Budget was income tax cuts. Income tax brackets haven’t changed for a number of years and the latest adjustment will begin to catch upto increases in living costs. Adjustments to Working for Families and the accommodation supplement will both help families struggling with rising rents and cost of living.
Spending is increasing across most areas of government services, such as health and education. This is very welcome after many years of spending restraint.
Analysis by Victoria University of Wellington and NZIER shows that once population and cost of living are adjusted for, the increases will only partly catch up some of the under-spend in recent years.
Future spending in the Budget will not be enough, with increases in the population and living costs. For example, education spending will fall by 7 per cent over the next five years, after accounting for growth in population and cost of living.
A surprising omission was enterprise. Given National’s strong affinity to business, I had expected some announcement for gradual decreases in the corporate tax rates, keeping pace with announcements Australia made last year. And an offsetting crackdown on multinational tax avoidable to fill the gap. Both would have been popular.
Unsurprising omissions were any ambitious steps to tackle the housing crisis, 30 years of unchanging inequality, and any meaningful steps to meet our environmental obligations under the Paris Agreement.
It was a good election-year Budget. Most voters will be pleased to receive a tax cut and largely carry on the status quo.
The common human condition of myopia means that most won’t notice the lack of ambition and lack of urgency to tackle the big issues of our time: housing, inequality and the environment.