RT @JoshBBornstein: 65 year study confirms my research: Tax cuts don't lead to economic growth. Ping @Nick_Xenophon , @BCAcomau https://t.…
19/08/2017 9:13 PM
RT @attn: .@Schwarzenegger has a blunt message for Nazis. https://t.co/HAbnejahtl
18/08/2017 9:38 PM
RT @PositiveMoneyUK: Make Monetary Policy Fair: It's time to explore alternatives to 'conventional' QE. https://t.co/m6CFVojm7w #QEforPeopl…
18/08/2017 9:35 PM
@deirdrekent To be expected when income is taxed and capital gain not...
16/08/2017 9:22 PM
@bernardchickey @YourHomeLoanNZ Add ring fencing loses / deal to negative gearing and we might see some balance develop in the economy.
16/08/2017 7:36 PM
@bernardchickey Or take the job and do the right thing anyway - the RBNZ is "independent" after all...
16/08/2017 7:34 PM
@bernardchickey Not take the job because you would know you would be on a hiding to nothing. The link between earn… https://t.co/nxPRuAaT6t
16/08/2017 7:31 PM
RT @theyearofelan: Sure, the cancer was aggressive. But the chemotherapy was also very aggressive. There was aggression on both sides
16/08/2017 7:27 PM
@bernardchickey DTI+LVR+OCR all needed for financial stability & inflation.RBNZ can then push back on dumb policy f… https://t.co/CqXISZUHGq
16/08/2017 7:27 PM
@SelwynPellett Farming capital gains makes it hard to pay current expenses hence the need to externalise costs. Th… https://t.co/J1yevZAHft
14/08/2017 5:46 PM
Recent Post Comments
I am sorry but this comment section has been disabled due to spam. My contact details are easy to find, please contact me if you want to comment or discuss anything on this blog.

Print-friendly
11
JUN 12

More Budget tweaking but big picture ignored




Tweaking around the edges was again the theme of this years’ Budget. Again the right noises were made but again the actions to back them up were timid at best.

The positives were more money for research and development, youth training and a crackdown on tax avoidance but these initiatives, while helpful, are hardly game changing. Even within these areas assistance would be better delivered through an R&D tax credit and apprentice training could have been funded.

The Budget detailed how the Government intend to move out of deficit by 2014/15 but this focus really misses the point. It is the current account deficit that has the potential to cause a debt crisis here and with governments bailing out financial institutions the line between public and private debt has been blurred anyway. The Treasury forecasts that underlie the forecast of a government surplus must also be taken with a grain of salt given the overly optimistic forecasts of the last few years.

The most concerning part of the Budget was the current account numbers. The forecasts have the deficit steadily increasing from 4.1 percent of GDP in 2011/12 to 6.5 percent of GDP in 2015/16 – so although Crown debt improves the overall debt position worsens.

Finance Minister Bill English seems optimistic that the deterioration in the current account will be driven by investment rather than consumption, but with the dollar overvalued (despite the recent drop) this looks doubtful at best. It is to be hoped that the ‘investment’ he talks about is not in the already overinflated housing market.

Overseas merchandise trade statistics released on budget day showed exports down 17 percent on April last year – clearly this is a sign that the rebalancing English talks about is not happening. The decline was mostly in the area of primary produce which demonstrates the need for a wider export profile rather than simply pinning our hopes on demand for commodities.

What is needed?

• On the revenue line, a broader tax base including capital gains and active exchange rate management are the keys to promoting productive investment over asset speculation, thereby improving export growth.
• On the spending lines, the entirely predictable burgeoning superannuation costs have to be addressed; it is a pity that Government doesn’t listen to Peter Dunne on this issue.
• On the savings side, the sooner Kiwisaver becomes compulsory the sooner we will no longer bemoan the absence of savings in New Zealand.

Until we develop the mettle to deal with the big issues our economy will continue to falter as we mess around the edges. Private debt, not Crown debt, is the issue facing New Zealand.
 


tags: current account, crown debt, budget 2012, r&d, superannuation
I am sorry but this comment section has been disabled due to spam. My contact details are easy to find, please contact me if you want to comment or discuss anything on this blog.