May 12, 2014 10:00am by David Farrar

ACT’s alternative budget

ACT have done an alternative budget, which is here.

The Herald reports:

Act Party leader Jamie Whyte has produced an alternative budget that would slash Government spending on what he calls “middle-class welfare” and “corporate welfare”.

He said cuts of $4 billion would allow the top personal rate of 33 per cent and corporate tax rate of 28 per cent to be cut to 24 per cent with a view to cutting them to 17.5 per cent by 2020.

Treasury estimates (roughly) that the cutting the 33% rate to 24% would cost $1.8 billion. Cutting the 30% rate to 24% would cost $0.8 billion. Cutting the company tax rate to 24% would cost $1.5 billion. That’s a total cost of $3.9 billion.

Matt Nolan at TVHE is unimpressed with the alternative budget. Not so much with some of the specifics, but with the claim that this would increase economic growth from 3% to 5%. I agree with him that this is an unjustified assumption.

There is certainly a lot of evidence that over time, developed economies with a smaller proportion of economic activity taxed by the Government, will have a higher long-term growth rate. But it isn’t a magic wand that overnight lifts economic growth by a massive 2%.

The Herald continues:

Act would phase out Working For Families by 2020, lift the age of eligibility for superannuation to 67, cut Kiwsaver kickstart and the tax credit, scrap paid parental leave and parental tax credits, end climate change obligations and reintroduce interest on student loans.

“This spending confers private benefits on politically favoured groups.”

It took money off people in tax then gave it back to them if they fell into one of the Government’s favoured categories.

Dr Whyte said corporate welfare was “a kind of system corruption which compromises a nation’s commercial culture”.

Under capitalism, entrepreneurs were supported to solve their problems by themselves or go out of business if they don’t.

“Labour want them to jump on a plane to Wellington with their hand outstretched to pick the pocket of the ordinary taxpayer.”

Those agencies that would be spared cuts under Act include ACC, Canterbury Earthquake Recovery, the GCSB and SIS, Corrections, Courts, Defence Force, Education Review Office, the Office of the Ombudsmen, Parliamentary Commissioner for the Environment, Police, Serious Fraud Office and Treaty of Waitangi Negotiations.

Three Government agencies would be abolished: Women’s Affairs, Pacific Island Affairs and Tourism New Zealand.

Most government agencies would be required to spend less.

Education, for example, would have to function on 1 per cent less, saving about $24 million. Customs would have to save 2 per cent or $3.17 million.

Treasury would have $7 million cut from its policy advice budget.

The biggest savings would come from cutting funding programmes within the Science and Innovation portfolio, $659 million, and Economic Development, $281 million.

It has also budged for $291 million less for the Ministry of Primary Industries, $196 million less for the Ministry for the Environment, and $111 million less for the Ministry of Foreign Affairs and Trade.