Article: Property Investment

Mini-Budget Delivers On Promises with Frank NewmanMini-Budget Delivers On Promises with Frank Newman

The new governments’ mini-budget presented to Parliament on 14 December delivered on Labour’s promise to reverse the legislated tax cuts that were due to come into effect on 1 April next year. They will instead direct that money into welfare.

The amount of money is significant. Had the tax cuts not been reversed, some $8.4 billion would have been distributed to taxpayers over the next four years by increasing the threshold at which higher marginal tax rates take effect. All taxpayers would have benefited.

Labour campaigned on the premise that we have a child poverty crisis that needs to be addressed, and any relief should go to that cause. The underlying message of the debate was a choice between helping the needy or the greedy - giving to impoverished children or handing money back to those who earned it, and in Labour’s view, least need it.

It’s an emotive argument that the political left plays upon, which sounds much more convincing than the more numerate arguments put up by the right - an appeal to the heart rather than the head.

It also underlies the philosophical debate about the best approach to assist those who need support - and the balance between government assistance and personal responsibility. The right places greater emphasis on transitioning people from welfare to work. The left gives far greater emphasis to providing more comfort to those who are on welfare. This is the political and social divide in New Zealand today, and the reason Labour has canned the tax cuts.

So where is National’s $8.4 billion benefit going to go under the Labour/NZ First/Green proposals? Not surprisingly, the main beneficiaries are the voting constituencies of the new coalition government: low income families, parents with newborns, and superannuitants.

• Working for Families payments will increase by $1056 a year for children under 16
and $575 for 16-18 years olds.

• Babies born on or after 1 July 2018 will receive a “Best Start” payment of $60 a
week for those not on paid parental leave until the baby turns one. Those earning
less than $79k a year will get the bonus until the baby turns three.

• From 1 July 2018, all 710,000 superannuitants will receive a “Winter Energy
Payment” of between $450 (single superannuitants) and $700 (for couples) a year.
Although payment is presented as a way for elderly folk to meet rising power costs
the money does not need to be spent on heating - it’s simply a handout to those
aged over 65 regardless of their financial circumstances, and has the scent of
political self interest rather than a genuine social need.

The package is expected to benefit around 384,000 families with children by an average of $75 a week. Changes to the accommodation supplement and the Winter Energy payment to superannuitants will see 650,000 households without children benefit by an average of $14 a week.

Part of Labour’s reform package is $21.7 billion of new expenditure over the next four years. That can be only be delivered if the economy remains strong, which seems likely. The day the government delivered its mini budget, Treasury released its half-yearly update. The key points are:

• The economy is expected to grow at an average of 2.9% a year over the next five
years.

• Wages are expected to rise faster than the rate of inflation, on the back of an increase
in the minimum wage.

• The unemployment rate is forecast to fall to about 4%.

• Net migration is expected to fall from 70,000 a year to around 15,000 within five
years. The main factor is not so much a change in government policy but a recovery
of the Australian economy, which will lure Kiwi workers across the Tasman.

On housing, Treasury does not expect the much heralded KiwiBuild programme to have any impact until 2019, and there are doubts that the 100,000 affordable homes in 10 years is achievable given the shortage of workers in the sector.

There are also doubts about how affordable the KiwiBuild homes will be. Building materials costs are rising fast (this week a major building supplies company advised steel costs would rise between 5% and 15% in January) and Treasury indicates labour costs will rise faster than the rate of inflation.

All this points to the higher building costs and higher housing prices at least for the next three years.

Labour campaigned on New Zealand needing a fresh start. I don’t think we have that in these policy initiatives. The new government looks to me to be a gathering of young socialists with old socialist ideas. It’s about wealth redistribution. While splashing the cash might be good news for the economy in the short-term, increasing public debt and making people more dependant on welfare is not going to make our nation more vibrant and prosperous.

Frank Newman is the principal of Newman Property Consultancy. He is the author of numerous books on investment matters. For questions or comment about this article contact .(JavaScript must be enabled to view this email address)


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