Special report: Why the May Budget needs to show leadership
19th Feb 10, 4:59pm
Watch on our video page here Watch on YouTube 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 year's 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 shouldn't 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 aren't holding up well - taxes on individuals are more than $400 million less than originally budgeted, - and $250 million less than the Treasury's 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 Minister's 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.