Cabinet, we are told, has signed off on the budget, to be presented next month. This year the focus is to be on “well-being”.
It’s a phrase that captures the style of the Prime Minister Jacinda Ardern. If the budget delivers, it will reinforce public perceptions of Labour’s leadership whose ratings have shot up in the wake of the Christchurch mosque massacre.
But will the budget be “transformative”?
NZ’s economy under Labour over the past six months has shown increasing signs of slowing.
Recent indicators of a weakening economy include rising job-seeker numbers, stalled job growth, a rising cost of living, lower economic growth forecasts by all major banks, weakening business confidence, and the Reserve Bank signalling a cut in interest rates to stimulate economic activity.
But buoyed by the latest Ipsos survey, which shows a significant increase in Labour being perceived as the most capable of managing all issues across the board, Finance Minister Grant Robertson could go hard on implementing the policies which would transform not just the economy but social sectors as well.
Not that the signs are all propitious. There are serious doubts whether the state’s own machinery is tuned up for the job, what with – as one commentator noted – the Reserve Bank governor thinking the bank is a Kauri tree, the Treasury trying to measure your sun and moon feelings, and the chief statistician eager to measure our spiritual well-being.
Robertson is probably a bit more cautious on the well-being guff than his leader. In any case, the headache for him is that virtually every sector where the state operates says it is massively underfunded.
Health and education demands between them could blow the budget surplus to smithereens and still be short in key areas. Then there’s the huge infrastructure deficit which has to be tackled – but where’s the skilled labour force needed for that?
Some of the pressure groups which back the Labour government believe it’s time to loosen the purse strings and apply a fiscal stimulus to get the economy back on to foundations for higher productivity and strong growth.
Robertson, after his recent visit to Washington for the IMF and World Bank meetings, will be conscious of the risks facing the global economy, and see the dangers in applying a fiscal stimulus on top of the very loose monetary policy currently being run.
In a small economy like NZ, booting up spending when monetary policy has lowered interest rates close to zero is a recipe for inflation quickly running out of hand, as demand exceeds supply across the economy.
Then (or rather, until this afternoon) there’s been the issue of the capital gains tax.
Labour’s support groups were calling for it to be as comprehensive as Sir Michael Cullen proposed. And with Labour riding so high in the polls, it would have been tempting to give NZ First the old one-finger signal without too much concern.
But Robertson, who remains in closer touch with the grassroots of his party than some of his colleagues, is unlikely to have seen much upside in giving his political opponents a stick to beat Labour with all the way to the next general election.
We weren’t surprised, therefore, to hear the PM declare the Coalition Government will not proceed with the Tax Working Group’s key recommendation.
“The Tax Working Group gave the Government, and the country, an opportunity to look at the fairness of our tax system and debate options for change,” Jacinda Ardern said.
“All parties in the Government entered into this debate with different perspectives and, after significant discussion, we have ultimately been unable to find a consensus. As a result, we will not be introducing a capital gains tax.”
The numbers game (counting prospective votes at the next general election) presumably has been decisive.
“I genuinely believe there are inequities in our tax system that a capital gains tax in some form could have helped to resolve. That’s an argument Labour has made as a party since 2011.”
“However after almost a decade campaigning on it, and after forming a government that represented the majority of New Zealanders, we have been unable to build a mandate for a capital gains tax. While I have believed in a CGT, it’s clear many New Zealanders do not. That is why I am also ruling out a capital gains tax under my leadership in the future.”
But this doesn’t mean there will be no new taxes:
“The Tax Working Group was a valuable exercise that has delivered some useful suggestions well beyond just the debate on CGT, and I want to thank the Group for its work. In fact the majority of recommendations will either be investigated further or have formed part of our work programme.
“There are other things that can be done to improve the fairness of our tax system. As such the Coalition Government has agreed to tighten rules around land speculation and work on ways to counter land banking.
“Work will also continue to cut red tape for business and crack down on multi-nationals avoiding paying their fair share of tax in New Zealand. We have already made changes to address base erosion and profit shifting, and we will shortly release a discussion document on options for introducing a digital services tax.”
For now, says the PM, her job is to focus on the things the government can and is doing (brace for it, dear reader) “to improve the wellbeing of all New Zealanders”.
“The Coalition Government is addressing the long-term challenges New Zealanders face such as mental health, climate change and child poverty and responding to the March 15 terrorist attack and keeping New Zealanders safe.”
Those challenges will be her priorities for the remainder of this term.
The poll figures suggest she will be back for a second term, of course.
Let’s wait to see what the priorities then will be.