Budget 2015

This is the most surprising Budget yet from this Government. While I expected the Government to spend a small amount of money on helping low income families, never did I think they would be announcing the first real increase in benefit rates in 43 years as part of an almost $800 million child poverty package.

It will be almost impossible for Labour and Greens to credibly attack this Budget, because it looks a lot like the sort of Budget they would deliver.  I’m impressed with the politics of it, but not impressed with the economics.

The main initiative is the child poverty package. The details are:

• $25 a week net benefit increase for families with children – 1^st increase since 1972. An 8.3% increase in the base benefit rate for most on welfare.
• To counter against any incentive to remain on welfare due to higher benefit levels, work testing for sole parents to start when youngest child is three, down from five
• Work testing obligation increases from 15 to 20 hours a week
• 110,000 beneficiary families with 190,000 children get a net extra $23 a week
• WFF increases for working families earning under $36,350 a year by $12.50 a week, up to $24.50 a week for very low income
• Families on WFF who earn over $88,000 a year get a bit less from WFF as abatement rate increases from 21.25c to 22.5c
• WFF changes benefit 200,000 families and 380,000 children
• 4,000 very low income working families get a net extra $24.50 a week
• 50,000 low income working families get a net extra $21.50 a week
• 150,000 other families get up to $21.50 a week
• Childcare subsidies for low income families up from $4 to $5 an hour. Families eligible for up to 50 hours a week so worth up to $50 a week.
• Cost of package $790 million over four years and then $240 million a year

On the overall economic front the main numbers are:

• Projected GDP growth of 2.8% a year
• Projected average wage growth from $56,000 to $63,000 by 2019
• Projected deficit for 2014/15 is $684 million, compared to $2.9 billion in 2013/14
• 2015/16 projected surplus of just $176 million
• Operating allowance of $1 billion a year next two years and then $2.5 billion in 2017 (election year) which will include “modest” tax cuts if fiscal and economic conditions permit
• Core crown expenses down from 34.1% of GDP to 30% next year

The Government is taking a big risk here. They may be forgiven for not making surplus this year, but with a mere $176 surplus projected for 2015/16, there is a real risk they may not even make it next year. This is not good enough.

On the revenue front some good and bad news:

• ACC levy cuts of $500 million over two years
• $1,000 kick start for KiwiSaver being removed. Won’t impact existing members who have had $2.5 billion since scheme began. Saves $500 million over four years so funds almost two thirds of the child poverty package
• New airport tax of $100 million a year being $16 for inbound passengers and $6 for outbound

Quite cunning to mainly fund the child poverty package from the KiwiSaver kick start credit being abolished. It won’t affect the couple of million people already in KiwiSaver, and if you’re a low income family would you rather have $1,000 in 30 years’ time or $25 a week now.

On the expenditure side, the usual mix of announcements:

• $400 million from the Future Investment Fund for Kiwirail which is the equivalent of throwing four million $100 notes into a paper shredder
• A further $210 million for fibre roll-out, making a total of $2 billion the UFB and RBI initiatives to have a fast connected country
• $1.7 billion for health over four years
• $443 million for education over four years including $63 million for special needs kids
• $113 million more for tertiary education
• $164 million for Police
• $50 million more for Whanau Ora
• $11 million for to help prevent Kiwi (bird) numbers declining
• $264 million more for NZ Defence Force
• $97 million for regional highways and $40 million for urban cycleways
• SIS and GCSB each get $20 million more
• Chch rebuild costs now up to $16,5 billion

It is very cunning budget politically.  It is delivering the very thing the left have been demanding – an increase in benefit rates. It will be a fascinating test of which child poverty lobby groups are actually principled, and which are just anti-National shrills. Because the child poverty groups should all be praising the Budget for doing what no Labour Government has done in 43 years – give more money to those on benefits.

But it is not a Budget I support. Where are the tax cuts for hard working Kiwis? Instead of a surplus and likely tax cuts, we get a further deficit and lots of extra spending. The Government had up until now done a good job of fiscal restraint, but not so on this occasion.

This is a Budget that should be praised on The Standard and The Daily Blog. John Key and Bill English have delivered more to families on benefits than Norman Kirk, Bob Tizard, David Lange, Helen Clark and Michael Cullen ever have.