May 21, 2010

A budget for the times

Finance Minister Bill English announced his second budget yesterday.  The budget provides for personal tax cuts for all and a reduction in the company tax rate.  It also attempts to slow down the rate of growth in government spending.  Health and Education still received significant new spending above where they were last year but that didn't stop some critics somehow construing these increases as "funding cuts".  Others have stoked up the politics of envy by pointing out that much of the tax gains will go to those on higher incomes.  But what they don't say is that the top 20% of earners pay 70% of the tax take -  which is also unfair and short-sighted. The budget also recognises that the truly rich manage their assets so as to minimise tax exposure anyway.  The people who get savaged by high income tax rates are the middle class and the working poor. Rather than resort to class war analogies critics would be better advised to look to the longer term economic outcomes - as well as social cohesion outcomes - of these changes.

The important thing about this budget is that it begins to set a new policy direction for the long term.  The new policy settings will provide better rewards for working, earning and saving. It will, through the GST increase to 15%, encourage kiwis to save any spare money - rather than spend it. By tightening up the rules around LAQCs and depreciation the government has also nudged NZers away from putting our savings into speculative property and towards other more productive investments. Changes to Kiwisaver contributions are also helpful - although could have gone further in boosting NZ's domestic savings rates.  With the economy poised to grow over the next 12 months it is a steady budget appropriate for the times.

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