The Budget's big and small print

Michael Cullen’s Budgets have big print and small print. You can win on one and lose on the other. So with business in this Budget.

A 30 per cent tax rate is a big plus and matches Australia — better than matches if Australian add-ons are taken into account. Tax credits for research and development are a plus. There are handouts for some exporting and industry training.

Come down to the smaller print. There is a net gain in the proposed tax rules for active income earned offshore: a real gain for companies operating in countries not now in the grey list, which will be abolished, though at most a qualified gain for those operating now in grey-list countries.

Also in the smaller print, there is more tax simplification to come — though also, for housing developers and associated businesses, tougher tax audits).

Put all that back into a bigger picture: by the end of this programme businesses as a whole will be paying more than $2 billion less than before it began. That is under a supposedly business-unfriendly Finance Minister.

Now back to the small print. Cullen’s (virtuous) obsession with the need to get saving and investment up drives much of this Budget. So employers are being conscripted into KiwiSaver with eventually large compulsory subsidies only partly offset by tax credits, though Cullen pointedly said the KiwiSaver subsidy should be taken into account in wage and salary negotiations. Payroll charitable donations to come will further load up the PAYE burden.

Also at the small-print level, Cullen insists KiwiSaver could help businesses retain scarce labour by creating nest-eggs employees won’t want to lose by emigrating. On the other hand, the absence of personal income tax cuts works in the other direction — though wait, there is an election-year Budget next year and forward surplus projections indicate a cut will be distinctly do-able.

Come back to the big print: KiwiSaver funds, as they build up, will eventually have a payoff in a more liquid stockmarket, greater capital depth and lower cost of funds, which is a pressing business need and an enormous enviable difference with Australia.

That capital depth will come, however, at the cost of siphoning off some consumer spending capacity. That presages lower profitability for a time for many businesses — though if lower consumer demand also reduces the external deficits, some of the pressure on exporters should ease.

The good news is that in the longer term businesses generally will do better in a well-balanced economy than in today’s “unvirtuous” (Cullen’s word) seriously unbalanced economy. Businesses just have to get through the short and medium term.

There is another negative in the big print in the short and medium term: the size of the government. The forward projections presume tax revenue and spending will be a constant proportion of GDP. Cutting both would leave more space for the private sector.

To which Cullen can logically argue that by OECD standards, New Zealand is not unduly high. He can argue that in part his spending reflects a necessary catchup for hospital and education workers (who can easily make more across the Tasman). And he can point to some pluses for business directly in the export and skills grants and indirectly in road building (though offset by a regional fuel tax in Auckland and in the (too-small) new spending on science.

Cullen might also argue that social services and Working for Families and much of the rest of the spending driven by his avowedly opportunity-equalising social democratic programme deliver a more settled society and that more money can be made in such a society than a dislocated one.

But by that point the print has got so big it doesn’t fit inside too many business strategic plans.

Finally, there is a big-print irony. If Cullen had introduced KiwiSaver in his first Budget he would now have the capital depth and, perhaps, better balanced economy he is aiming to steer us towards in this Budget. The irony of his reaching this point only in his eighth Budget is that if he is right, another Finance Minister, probably an opponent, will reap the reward.