Special report: Why the May Budget needs to show leadership

David Chaston presents a Special Report on the half year Crown accounts and why we need some serious innovation in the forthcoming Budget announcement, brought to you in association with BNZ

On May 20, Finance Minister Bill English will present his second Budget to Parliament.

It will be one of the more eagerly awaited policy statements from this government.

This year we have had the
- 2025 Commission,
- the Tax Working Group,
- and the Capital Markets Taskforce.
all appointed by this government to look at some tricky issues, ones that require special leadership to solve.

They have now all reported back but the reaction from the Prime Minister, and his cabinet colleagues has hardly been enthusiastic.

The Finance Minister clearly noted the challenge the country faced at last years Budget review, pointing out that unless something significant was changed, we all face a demoralizing trudge out of the debt binge we had over the past ten years or so.

Surpluses are not expected to return until 2016 at the earliest until then we will be adding public debt that grows from 5% of GDP to 35%. And this is on top of 120% of GDP incurred by the private sector, basically for houses and farms.

We shouldnt be trying to solve our debt problem by borrowing more, or shifting debt from the private sector to the public sector.

Today we got the Crown accounts, the status at December 2009.

At first glance, they look better than expected.

But look a little deeper, and what is keeping things this way are a series of one-off positives. Things like ...
- backing off some of the deposit guarantee provisions
- better settlements with the banks over their tax cases
- shifting out Treaty of Waitangi settlements
- and lower interest rates and lower immediate borrowing requirements.

But, few of those things will get repeated.

Tax revenues arent holding up well
- taxes on individuals are more than $400 million less than originally budgeted,
- and $250 million less than the Treasurys own half year fiscal update,
and without the bank tax settlements, corporate taxes collected are notably less as well.

It is only GST that shows any chance of achieving last years Budget estimate on a sustainable basis.

The Tax Working Group declared our tax system broken. It needs a comprehensive fix, for all the reasons that we have explored on this website.

But it seems unlikely we are going to get a proper fix on May 20, based on the Prime Ministers recent equivocations.

All that seems likely is a stream of sickly government accounts showing revenues less than expenditure and rising debt levels, all to be paid for by the next generation of taxpayers and voters.

Or, until we get real leadership.

Category:

News & Politics

Tags:

• Special report
• Finance Minister Bill English
• Tax Working Group

[danbuck333]

@caveltor well we arent incumbered but we do have a lot of debt , our grandparents didnt spend beyond there means and neither should we,

look at greece uk america portugal italy etc they are just drowning in debt , its crippling there economy

People who live beyond there means are destine to live beneath them in the future.

There is a reason why all the money has moved out of europe and america into asia

[caveltor]

Are we encumbered with the debts run up by our parents and grandparents? No, but we enjoy their buildings, roads, gas pipes, power cables, technological, medical and economic developments.

[keithholden]

Public debt: 29.3% of GDP (2009 est.) country comparison to the world: 90 24.4% of GDP (2008 est.) Exports - partners: Australia 23.2%, US 10.1%, Japan 8.4%, China 5.9% (2008 Imports - partners: Australia 18.1%, China 13.2%, US 9.5%, Japan 8.3%, Singapore 4.7%, Malaysia 4.4%, Germany 4.3% (2008 Oil - proved reserves: 60 million bbl (1 January 2009 est.) Oil - imports: 147,600 bbl/day (2008 est

[keithholden]

Look at Greeces dept to gdp then look at ours and see what you think

[danbuck333]

@caveltor If we dont pay it back our children will be leaving not living off fruits

I believe germany payed off there debts although that was payed off in gold which actually made it more expensive

countries that dont pay back there debts lose there national resources and their children are poor and not living on fruits of there parents labour

[caveltor]

Oh no, not the "our children will have to pay it back speech".

Thats just not how it works.

Show me a country that has ever paid off its debt denominated in its own currency. The dont exist, no country has ever paid off its debt, and probably never will.

Our children will not be paying back anything. They will be enjoying the fruits of our labour, and labouring such that thay and their children may enjoy the fruits of theirs.