NZ POLITICS DAILY: National's Labour-lite Budget

Why would National focus its Budget on traditional Labour concerns such as housing, health, education, and welfare? Simply because the Budget exercise is an important part of National's re-election campaign, which requires that the Government be seen as ideologically centrist and pragmatic. To do this it needs to carry out what political spindoctors and strategists refer to as 'inoculations' - getting rid of any potentially unpopular policies. At the moment National is vulnerable on those traditional Labour concerns. By addressing them with new policy and additional expenditure, this leaves the Opposition with significantly reduced opportunity to criticise the incumbent government.

The best that Labour will be able to throw at National is the idea that the Government is stealing from it, as foreshadowed by Labour's blogging spindoctor Rob Salmond in Budget 2014: The Labour-lite budget. He jokes that 'National loves outsourcing, and this year they outsourced their vision to Labour'. Salmond says that Labour should be credited with forcing these concessions, as Labour has 'put significant pressure on the government, forcing them to dance to the left's tune in a critical election year. It is another sign of a government that is out of ideas'. He also makes a good argument that although National will have a new housing initiative, there won't actually be much money for it, perhaps only about $100m.

A boring and moderate budget

Most political commentary on the upcoming Budget emphasises that it will be moderate in nature.

One of the best analyses comes in Liam Dann's National needs to dish up comfort. In this he labels the announcement the 'Cheese-on-Toast Budget' with the following argument: 'Cheese on toast: comfort food - cheap, uncomplicated but satisfying and hard to argue with. It doesn't overpromise and always delivers'. Dann says that Bill English's 'job will be to provide a healthy dose of boring and sensible but with a stern reminder of what is still at stake for the New Zealand economy'. And he points out that 'The appetite for wholesale change just isn't there'.

The Budget will not be 'radical' according to Vernon Small - see: Steady as she goes with 6th Budget Education, health, housing boost likely. As well as attempting to 'spike some of Labour's big guns' by advancing into Labour's territory, the Budget will continue with relatively big spending according to Small. He points out that National Government spending has increased from $57b when it took office, to about $72b this year. Hardly austerity economics.

This week's Budget might give the public a better idea of what National would do if it gets re-elected in September, although John Key has signaled that it will largely remain business as usual: 'if we get a third term we will not be changing what we've done in the past six years. We are confident about what this country can succeed and achieve' - see: Health to receive biggest Budget boost.

The NBR's Rob Hosking will be disappointed if the Budget just signals more of the same: 'Budget 2014 has to give some indication what National will do with a third term. At present, we know nothing about what Mr Key's government will offer for the next three years. Measures aimed at the politically sensitive housing market look most likely but any programme will have to do more than slap some fiscal calamine lotion on that particular economic, political and social sore' - see: Budget 2014: a surplus but then what? (paywalled). Hosking also proposes some reforms: 'Measures to remover impediments to saving - the over-taxation of income from savings being the most glaring - need to be looked at. If National wants to get really ambitious - economically and politically - it could revisit the Savings Working Group's idea of indexing tax brackets to inflation'.

A lucky comparison with Australia

Whether by luck or design, Bill English's attempt to paint his economic management as moderate has been given a boost by his Budget coming just two days after the extremely austere Australian budget. As the Herald points out,Australians must envy our Budget. The 'Severe cuts to health, welfare, education and other sensitive areas of spending' across the Tasman almost make Bill English look like a socialist. And Prime Minister John Key has been saying that the New Zealand Budget would be in stark contrast to that of Australia's.

Referring to Tony Abbott's first Budget, Tracy Watkins says 'This is the budget Key and English never had. Yet it is one that that many of National's more Right-wing supporters hankered for after Key and English were elected to power during the dark days of the global financial crisis.... It was also the sort of budget that many of National's opponents to the Left hankered after for obvious reasons. Had it pursued that path, National could well have been a one-term government' - see:NZ Budget defies Aussie gloom.

Similarly, Gordon Campbell says, 'Look at Australia, Key can validly tell his own caucus hardliners and corporate cronies, and see how politically suicidal the policies of ideological extremism would be here too, in practice. For this entire term in office, Key has been positioning National to deliver this message of success via alleged moderation' - see: On this week's Budget rhetoric. See also Chris Trotter's blog post, The Cruellest Cuts: Why Joe Hockey's Budget Will Almost Certainly Fare Worse Than Bill English's.

Welfare changes

Paid parental leave is now a popular and embedded part of New Zealand's welfare state. According to the Dominion Post, the Labour Party can take the credit for making it so, and for creating a demand for the extension of the scheme - see: Big political push set to benefit parents.

There is a strong expectation that National will announce some sort of extension to the scheme tomorrow. Claire Trevett also sees National's shift on this as designed 'to avoid being outflanked by Labour in fertile vote-hunting turf' - see: Battle for family vote on paid parental leave. But is the extension to paid parental leave the best way of achieving National and Labour's goals of ameliorating child poverty? Many think not, and in Trevett's article, Victoria University's Jonathan Boston is cited as saying that 'if the aim was to help parents of babies and infants then extending paid parental leave was not the best approach'.

There are some signs that the Government might introduce a greater degree of targeting in welfare. According to Trevett, 'English has also hinted at some more targeted support for low-income parents is on the cards'.

Housing battles

An inoculation for housing is a certainty for tomorrow, but it's far from clear what form this might take. So far, National has concentrated on solving the 'supply side' of housing rather than the pressures of 'demand' - see John Armstrong's Battle lines over affordable homes. He points out that 'Labour is offering more populist policies on the demand side, such as blocking foreigners from purchasing existing homes, though not new ones that they build and thus add to the housing stock'.

There continues to be uncertainty about the extent to which foreign-based house buyers are affecting the prices - see Brook Sabin's Govt: Foreign buyers not part of housing problem.

No significant tax changes likely

There are unlikely to be any radical reforms in the tax system tomorrow. If anything, there might be something related to targeting social assistance, but no big changes in the area of savings - see Tamsyn Parker's Don't expect any KiwiSaver.

We can rule out Bill English introducing a capital gains tax according to tax specialist Greg Thompson - see: Why a capital gains tax will be off the agenda. He says that 'Capital gains tax (CGT) has become a major policy difference between the two main political parties in the lead up to this year's election but it's unlikely to get any air time in the budget'. He explains this via the possible impacts of such a tax - especially the unintended consequences - and concludes: 'the negative impact on markets, business and a fragile economy means now is not the time'.

Labour Party's economic alternatives

Labour announced its version of the Budget earlier this week - see Michael Fox'sLabour targets unemployment rate. This had support in the blogosphere from No Right Turn - see: "A wish, a target, and a dream", and opposition from David Farrar - see: Labour's 4% unemployment target.

The most interesting response was from economist Matt Nolan, who was especially critical of Labour's idea that it could 'set' the unemployment rate - see: Labour's alternative budget. Nolan was also surprised that Labour had so little in terms of leftwing policy: 'And here is what surprises me. Our main left party has nothing to say about social policy and poverty, but plenty to say about subsidising exporters and other industrial subsides ... very interesting'.

According to Tracy Watkins, 'Labour's biggest enemy may be the improving economy', and she cites the latest Fairfax/Ipsos opinion poll 'showing 63.6 per cent of voters believe the country is on the right track' - see: National has no need to pull rabbits out of hat. Labour is also down in this poll 'to 29.50 per cent, taking it below the morale-busting 30 per cent threshold for the first time'. National is also down to 47.6 per cent, but still 'still enough to govern alone'.

Green eco-economics

The Green Party is pushing its more eco-capitalist brand at the moment, and this week's Budget announcement was a bold proposal for a private-public partnership bank - see Adam Bennett's $120m 'Green Investment Bank' plan for clean tech projects. In the blogosphere, No Right Turn thought it a A good idea, David Farrar suggested Greens do want taxpayers to lose 96% of their funds also!, and Rob Salmond had some reservations - see: The Green Investment Bank.

Act Party alternatives

In a time of bland budgets, the Act Party can also be relied upon to provide something more interesting - see Audrey Young's Act leader produces alternative budget.

However, economist Matt Nolan was even more scathing about Act's alternative budget than he was about Labour's: 'I would like to take all parties seriously, but this is a frankly ridiculous budget that makes claims that are totally unsubstantiated - anyone with any experience in looking at the data, and the impact of policy, may say that lower tax rates will increase the level of economic activity - but the magnitude implied here indicates that the ACT party has no idea about real economics and is leaning solely on ideology (hence why most of the document is arbitrary catch phrases). To be blunt, this document might use economics terms but parts of it are frankly economically illiterate' - see: ACT's alternative budget.

Nonetheless, Act could be an influential part of the next National-led government and economic direction - see Fran O'Sullivan's Act ups the ante on era of entitlement.

Finally, for a parody of what the Minister of Finance might have been going through in producing the latest Budget, see Scott Yorke's Bill English meets the media.