‘tax relief’ for the ‘squeezed middle’ – but who’s paying? 7 experts follow the money
- Written by Timothy Welch, Senior Lecturer in Urban Planning, University of Auckland, Waipapa Taumata Rau
Craig Elliffe: Small cuts, big consequences
Honestly, who would want to be Nicola Willis at this point?
The effect of $14.7 billion of tax cuts is going to mean a dramatic rethink on expenditure in New Zealand in the long term, and about what sort of public services we expect as a country. The government’s cut-it-back strategy appears focused on the next four years, not a longer horizon.
From a broader economic perspective, the hope is the cuts will provide help for households. But that is not great relief if interest rates do not come down. So, the story for 2024 will be increasing job losses and a gloomier economy.
The tax cuts spread a little over a lot of people. And you have to ask, will $50 or $100 a fortnight really make a difference if interest rates stay high and the ability of the government to pay for core services reduces?
If the government keeps tightening the belt to pay for what are, in reality, small tax cuts, we’re going to end up with poor infrastructure, low wages and a struggling economy.
One positive thing about the tax policy, however, is that the government is facing up to the fiscal drag question[1]. More than 14 years of inflation have moved people into new tax thresholds, eating away at the benefits of salary increases.
Taking a longer-term view, organisations such as the International Monetary Fund and OECD would have preferred the government to focus on paying down debt to get New Zealand to a surplus faster. To do that, those organisations suggest New Zealand introduce a tax on capital – but this budget avoids such big questions.
Dennis Wesselbaum: Prudent fiscal management
Fiscal budgets involve the crucial task of strategically allocating resources across various vital sectors, such as health, education and infrastructure.
The big-ticket items in this year’s budget are the tax relief – adjusting tax thresholds and the FamilyBoost childcare payment – and spending increases in health, schools and policing.
Tax relief is achieved by adjusting tax brackets for those on low and middle incomes. This should have a positive effect on the economy without creating inflation.
Spending is financed by redistributions, cuts in other areas, and by shrinking the public sector (by about 4,000 jobs), with fiscal surpluses predicted to return by 2027-2028. The underlying economic outlook from the Treasury looks reasonable, and we should see interest rate cuts by early to mid 2025.
Overall, this budget is a welcome return to focusing on outcomes and prudent fiscal management. Delivering a budget that simultaneously addresses many structural problems during a recession is always a difficult task, but this is a step in the right direction.
Timothy Welch: Infrastructure funding falls further behind
The 2023 budget was all about rebuilding and resilience: the extension of free public transport for children under 13 and half-price fares for under-25s; millions for rail and road restoration and resiliency; funding for more public housing and a clear emphasis on protecting the country from natural disasters and climate change.
All of that is gone now. While not exactly an austerity budget, it significantly cuts public spending, aside from on roads, as New Zealand falls further behind on funding critical infrastructure[2].
The budget does allocate some funding to important transport initiatives, such as Auckland’s Rail Network Rebuild Programme ($159.2 million). But this comes at the expense of Auckland Light Rail, the Clean Vehicle Discount, Clean Vehicle Standard Administration – and, surprisingly, from cuts to the Community Connect public transport affordability programme.
Much of the transport budget ($1.955 billion) goes to implementing the Draft Government Policy Statement on Land Transport, primarily dedicated to delivering the Roads of National Significance program, with another $1 billion being held in contingency.
The budget does not mention the cycling, walking or important green infrastructure investments that would help deliver decarbonisation. It is also silent on needed investments in storm water management and flood control, while taking “savings” from the repealed Three Waters program.
There is a bright spot for infrastructure, however, with the creation of the National Infrastructure Agency – though operational details are not yet available.
While the cost of living looms large for many, tax cuts in place of essential infrastructure upgrades and investments look short-sighted in the face of increasing traffic congestion, more extreme weather and flooding, and the threat climate change poses to all infrastructure.
Mark Barrow: Education funding favours the private sector
Generally, the government has (so far) kicked the tertiary sector can down the road. The university system review[3] and winding down of Te Pūkenga[4] (the merged polytech system) has left the focus mainly on schools, schooling and teachers.
As such, the education policy settings supported by the budget resurrect old conflicts around theory versus practice, whole language learning versus structured literacy, and university teacher training versus school-based apprenticeship models.
Ahead of the budget, both Education Minister Eric Stanford and Associate Minister David Seymour painted a grim (frequently inaccurate) picture about the state of New Zealand’s education system and the people who work in it.
Their answer has been to use the budget to direct public money to the private sector. This includes funding for new charter schools (where school owners will not face the restrictions being imposed on state schools), and increased support for the private early childhood education sector and private teacher training establishments[5].
While schools will welcome the relatively small increases in operational and property funding, this budget is moving more money into the hands of the private sector.
Anna Matheson: Health holds steady
With $8.2 billion in new spending over four years, it is good to see health being prioritised, although most will cover existing cost pressures. The current fragmented state of the health system cannot be blamed on this government, but those in power now have a choice: bow to expediency and continue with superficial or isolated attempts to fix things, or learn from the past and deliver an improved system.
But opting for tax cuts instead of signalling effective and sustainable approaches to the country’s complex health, social and environmental challenges seems shortsighted.
Yes, an additional $20 a fortnight from tax cuts may be the difference between seeing a GP or not. But the removal of free prescriptions for most people could also mean the difference between having access to medicines or not.
A better investment would be to make access to primary care easier and more affordable. And we know primary care, alongside healthier local environments, can keep people out of our expensive hospital system.
So, the focus on the health workforce is essential and overdue. But part of keeping people out of hospital is what happens within other sectors, not just health. Depending on how it is implemented, the new Social Investment Fund could help here, but we need more detail to know.
Hiran Thabrew: Not enough for mental health
Despite the National Party’s pre-election promises to improve mental health and the government’s introduction of a minister for mental health, it is disappointing to see the limited amount of funding overall: private provider Gumboot Friday ($24 million over four years) and a Mental Health Innovation Fund ($9.7 million over four years).
Tax cuts and the relatively small amounts they will put into the pockets of the “squeezed middle” may alleviate some stress-related mental health issues. But one in five New Zealanders experiences mental distress and illness. This costs $12 billion (5% of the GDP) each year.
The previous Labour government invested $1.9 million in primary and community-based services for those with mild to moderate mental health issues. Meanwhile, demand for specialist mental health services grew by 75% over the past decade, without a corresponding increase in resourcing.
It is a shame the needs of those with moderate to severe mental illness remain ignored. This is the group with the greatest need of support, and many New Zealanders and their whānau could be among them at some point in their lives.
In 2022, specialist mental health services saw a 12% staff departure rate, versus a 9% recruitment rate. Some 20% of psychiatry positions are currently vacant, and crisis-driven acute care is becoming the norm.
If the government doesn’t urgently address workforce shortages, ring-fence mental health funding, and update a 20-year-old mental health survey on which current funding is based, it won’t have the Labour Party to blame by the next election.
Julia Talbot-Jones: Silent on the environment
Leading up to its first budget, the coalition government has dismantled environmental protections and introduced new legislation to support economic growth.
Environmental advocates have called it “a war on nature[6]” and some have compared the pace and magnitude of reform underway to the “Think Big” mistakes of the 1975-1984 National government[7].
The controversial Fast-Track Approvals Bill[8] has received much attention and is now going through a submissions process. But the government is also replacing freshwater and biodiversity legislation, and it has relaxed marine protections and cancelled a swathe of climate policies.
The budget does nothing to allay public concern about the repercussions of these policy decisions. Instead, it underlines the government’s support for development. It delivers nothing new for the environment, climate or conservation.
Willis was notably silent about the environment in her budget speech[9], only mentioning a continued $2.6 billion investment in existing climate initiatives, and the growing importance of the Emissions Trading Scheme. A preliminary assessment of Treasury documents shows a reduction in overall funding across most environmental protection domains over the next five years.
Climate and environment are not solely “environmental” issues, they are economic matters: both of New Zealand’s largest export earners (agriculture and tourism) depend on New Zealand upholding its international image as a healthy environment.
This cannot be maintained without continued government involvement and investment through strong environmental policy and financial commitments. To do otherwise is to jeopardise New Zealand’s long-term economic future.
References
- ^ fiscal drag question (www.infometrics.co.nz)
- ^ funding critical infrastructure (theconversation.com)
- ^ university system review (www.education.govt.nz)
- ^ winding down of Te Pūkenga (waateanews.com)
- ^ private teacher training establishments (www.tec.govt.nz)
- ^ a war on nature (eds.org.nz)
- ^ 1975-1984 National government (newsroom.co.nz)
- ^ Fast-Track Approvals Bill (www.parliament.nz)
- ^ budget speech (budget.govt.nz)
