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Budget 2010: Now it's up to taxpayers

Post-budget best case scenario for the Government: Most people react responsibly, saving or investing their tax cuts. Inflation rises but far less than Treasury's forecast. Reserve Bank raises interest rate by a quarter of one percentage point, says it's

Sun, 23 May 2010

Post-budget best case scenario for the Government: Most people react responsibly, saving or investing their tax cuts. Inflation rises but far less than Treasury's forecast. Reserve Bank raises interest rate by a quarter of one percentage point, says it's because the economy is growing and has nothing to do with the budget. Families realise they really are better off, Labour fails to find anyone who says they are worse off. Petrol and power price rises caused by the introduction of the emissions trading scheme are accepted as necessary to deal with climate change. New Zealand First slips to less than 1 percent in the polls. Solo mum says "I'm voting National". All Blacks win World Cup.

Post-budget worst case scenario for the Government: Most people spend their tax cuts, saying they don't have a choice because GST at 15 percent is hurting. Inflation rises above 6 percent. Reserve Bank announces vicious interest rate rise and blames the budget. Families realise they aren't better off, Labour finds hundreds who say they're worse off. Opposition to emissions trading scheme becomes a serious problem. NZ First reaches 7 percent in the polls. Wealthy property owner says "I'm voting for Winston Peters". All Blacks lose to France in quarter-final.

Reality lies somewhere in between, and the Government's bold budget carries with it some risks.

Delivering tax cuts in the second budget of a three-year term deprives Labour of being able to claim the Government is buying votes in an election year, but it leaves a long time for voters to perhaps discover they're back where they were before they were given them, and maybe they've actually gone backwards.

And there is still a budget to come before the election. Prime Minister John Key is indicating he considers last week's tax reforms will last a few years, and any further tax cuts are some way off. He isn't ruling anything out, but another round of cuts would be very difficult to justify as "fiscally neutral" without raising revenue in some other way.

So if this is as good as it gets, next year's budget isn't likely do anything to enhance the Government's popularity.

Maybe it doesn't think it will need to. National's poll rating has been remarkably stable and nothing seems to have an impact on Key's personal popularity. If it can ride that through to around the end of next year, it won't have much to worry about.

Unless Finance Minister Bill English's tight-fisted approach to new spending, essential because he is trying to keep debt under control while the Government borrows $240 million a week, has a detrimental impact on public services.

Most government departments didn't get an increase in their budgets. They are being told to do better by working harder and smarter.

It won't be easy and the public health service must be the most vulnerable. Out of $1.1 billion new spending, health was given $507 million. In last year's budget it was given $750 million, and in previous budgets under Labour it gained far more than that each year.

The health demographics are horrible, with more elderly people needing services which cost more each year to deliver.

Health Minister Tony Ryall says $507 million is enough to protect services against inflation and population growth, and promises frontline services will continue to improve.

The definition of "frontline services" is already becoming blurred and Labour is finding more and more reasons to complain about deprivation and misery.

Labour's leader, Phil Goff, is vowing to fight the budget "all the way to the ballot box" and sees it as the opening his party has been waiting for.

Between now and October 1, when the tax cuts come in and GST increases, Labour will be adding up every little price rise it can find to show the cuts have been wiped out even before they have been delivered.

Labour needs to get some real traction on this, because it hasn't been able to make much of an impact on anything since the election. It thinks it can, and finance spokesman David Cunliffe is fizzing with anticipation

It will be a while yet before reaction to the budget has settled down and opinion polls start to show whether the Government has gained or lost from it.

Initial response was definitely positive, even though it was tested through unscientific polls like TV One's phone in survey which showed 80 percent in favour. That was a huge majority, and if it is reflected in the random surveys ahead the Government will be pleased with itself.

But the polls which are really going to matter will be those conducted between October 1 and the end of this year, when voters will have figured out whether this really was a budget for the many, not the few, and how it has affected their families.

Immediate reactions to the budget were probably a quick visit to the website tax tables to find out how much it meant in real money. The answers would have been better than most had expected, because the media didn't anticipate that big block of middle income earners getting anything.

Round one goes to the Government. But it might have that nagging feeling that all this has happened too soon for it to carry through to the time when it is going to matter most.

Sun, 23 May 2010
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Budget 2010: Now it's up to taxpayers