Budget time — and some signs of policy movement

Colin James’s Otago Daily Times column for 2 May 2017

The budget is three weeks away. Money is being sprayed around. It’s election year.

Last week’s spray was the infrastructure spend, up a bit from the December Treasury update, half of the increase due to the Kaikoura earthquake.

Steven Joyce presented that as investment for the future. Labour’s Grant Robertson said it was catchup with the immigration flood.

The net migration increase is the equivalent of around 1.5% addition to the population. That means 1.5% more on roads, schools, houses and what goes with houses.

Some of the immigrants are needed to build houses — in part for immigrants.

Joyce also dangled tax adjustments, insisting he hadn’t made final decisions. He talked more of raising thresholds than cutting rates and fed in raising thresholds above which the Working for Families rebate is cut.

Thresholds are important because as wages rise through thresholds taxpayers pay proportionally more of their income in tax. It’s called bracket creep.

Those hit by bracket creep and the Working for Families cutoff are the sorts of people Joyce wants to keep inside the National tent or at least outside the smaller Labour+Greens tent.

Other thresholds impose high effective marginal tax rates on people on various benefits or rebates who work. The can be a cogent reason not to work or to earn too much more.

That is directly counter to National’s mantra about getting people into work.

Still, people have been getting into work. Joyce basks in the high 67% employment rate of the working-age population, far above the likes of Australia and the United States — at a time when the immigration flood logically should be expanding the available workforce faster than new jobs can keep up.

Joyce also claimed a higher proportion of those in work are in fulltime work than in comparable countries.

That is re-election territory.

Go back to the tax thresholds.

First, the thresholds will need to rise significantly to make good the extra tax Joyce is raking in through bracket creep than he would have if the thresholds had risen with wage inflation since the last tax reset in 2010.

Just making this adjustment would account for a bit north of half a billion dollars of any “cut” announced on budget day, a point ACT’s David Seymour is making very loudly.

Second, the rebate and benefit-related thresholds underline the fact that in rich New Zealand large numbers of people in fulltime jobs, let alone part-time ones, cannot sustain themselves on the wages they are paid.

Those low wages are a result of government policy: a highly deregulated labour market. So highly profitable companies like Restaurant Brands, run by a lavishly remunerated chief executive, pay pittances.

Another government policy, the import of tens of thousands of people on holiday working visas, helps keep wages low in the cafe, hospitality and some other sectors.

That won’t change on budget day. But behind the scenes some changes are building up to budget day.

One is a recasting of the business growth agenda, finalised a couple of weeks back for release after the budget.

The BGA, as it is known in acronym-land, is said now to look out to 2025 — a “vision”, from a government that eight years back scorned such things, along with “strategies”.

Infrastructure (which includes housing) is one of the big focuses. It will pay particular attention to the “three waters” ā€“ freshwater, wastewater, including sewage, and stormwater.

Water has climbed up the political agenda and got another lift with last week’s glum report on water quality by the Ministry for the Environment (MfE) and Statistics New Zealand, the third such report in short order.

That prompted Primary Industry Minister Nathan Guy to say something a bit like “no more cows” or at least “not too many more cows”, which would have been unimaginable from National a year ago.

Add in that Simon Bridges chairs the ministerial group on the BGA’ s environment strand. Bridges is younger and leans a bit greener than Joyce and Bill English and, as now a ranking cabinet figure, might be a bit less deferential to them.

Tie that in with MfE chief executive Vicky Robertson’s joining the six-member economy group of state sector chief executives. Don’t get excited but there is some movement away from GDP-over-all. The Treasury is working on natural capital, water allocation and pricing and an emissions agenda.

The Treasury is taking seriously the widening of the government’s balance sheet — next issue due early 2018 — from just measuring financial and physical capital to also looking at the other three capitals in its living standards framework, natural, social and human.

That butts on to climate change. There is movement in the cabinet there, too, though probably not too much pre-election.

One avenue open to it to appear to be doing something serious could in theory be to park it with an independent commission — say, the heavyweight and influential Productivity Commission for a post-election report. Who knows?