PM Key adds Justice to Health and Education portfolios that won't face spending cuts in May Budget

PM Key adds Justice to Health and Education portfolios that won't face spending cuts in May Budget

By Alex Tarrant

Prime Minister John Key has added the justice portfolio to health and education as those not facing cuts in the upcoming 'zero budget', while also pouring more cold water on the proposal of an earthquake levy to pay for costs arising from the Christchurch earthquakes.

Key has signalled there will be no additional spending in this year's budget from last year as the government looks to control expenditure and get its books back to surplus by 2014/15 to begin paying back higher-than-forecast debt.

When Key announced the 'zero budget' last Sunday, he indicated all areas could face spending cuts except health and education, which could share NZ$600-NZ$800 million of new spending found from other areas. The announcement has led to speculation the government could cut the top levels of Working for Families and tighten eligibility for other schemes, such as interest-free student loans.

Speaking this morning on TVNZ's Breakfast programme, Key added the justice portfolio to health and education.

"What’s going to happen in the budget, it’s reasonably clear, is that we need to pay for the earthquake, we get [recognised future costs] booked to the accounts straight away," Key said.

"I think we do need to put more money in health and education, so we’re going to do that, and justice, and we’ll find savings in other areas," he said.

No to levy

Key poured more cold water on the Green Party's proposal for a temporary earthquake levy placed on income taxes to pay for government's costs arising from the Christchurch rebuild. The Green Party is proposing a levy be placed on incomes over NZ$48,000. Calculations from the Parliamentary library for Green Party co-leader Russel Norman show the Green's suggested levy could raise NZ$457 million a year, although the party has looked at various scenarios that could raise up to NZ$1 billion a year if the company tax rate, which will drop on April 1, is held at its current level. See more in the update below.

On the Green Party blog site Frogblog, Norman said those earning between NZ$48,000 and NZ$70,000 a year could pay up to an additional 1% income tax, while those earning over NZ$70,000 could pay up to an additional 2% income tax to help pay for the reconstruction of Christchurch. People earning less than NZ$48,000 and all those living in the Christchurch region would be exempt from paying the levy.

However, Key and Finance Minister Bill English have repeatedly ruled out imposing such a levy on the grounds it would have to be applied to lower income earners than Norman suggested, and that it would have to be imposed for longer than five years, meaning it would not just be a 'short-term' option.

"As we discussed last week, there’s really only a couple of options. One is, you keep that debt forever, that’s not acceptable, I think, to New Zealand or the public, and you’ve got to pay interest on it," Key said this morning

"[Two], we send everyone a bill in the form of a levy, and that will cut in to incomes at quite low levels – NZ$40,000 and above, and you’ll pay it for decades, frankly," he said.

"Or the third option is we’re more careful with our expenditure. Yes I know that has some impacts on people, but of all the options we have, none of which are good, in our view that’s the best one."

The government's net debt is forecast to rise higher than 30% of GDP - it's self imposed comfort zone - in the next four years as it responds from a slower than expected recovery in 2010 and a larger borrowing programme to pay for the immediate costs of the Christchurch earthquakes.

Greens respond

Greens co-leader Russel Norman told interest.co.nz that the government should actually look at the numbers on the levy issue rather than scaremongering.

"In fact it is they who are risking a big bill in the form of higher interest rates," Norman said in an emailed response to this morning's comments made by Key.

"The truth is that they [government] risk adding 30 to 100 basis points on everyone’s home mortgage if we get a credit [rating] downgrade because they borrow instead of striking a levy. If you had a mortgage of NZ$300,000, then 100 basis points extra interest works out at around NZ$60 a week extra – ie we would end up paying more and it would simply go overseas, rather than paying ourselves and avoiding debt and a credit [rating] downgrade," he said.

The Green Party presented six scenarios for a levy to the government, which different options raising between NZ$229 million a year to NZ$1.026 billion.

"[The NZ$1.026 billion scenario] would mean someone on NZ$50k paying 50c a week extra; on NZ$70k paying NZ$6 a week; someone on NZ$100k paying NZ$23 a week. If you add in a delay in cutting the company tax rate (which was cut in anticipation of an Australian company tax cut to 28% that didn’t come) then you get NZ$1 billion a year. It is not a huge impost. So if you decided to raise NZ$5b from this source then it would be for 5 years," Norman said.

New Zealand's company tax rate will drop from 30% to 28% on April 1. For more on this and other tax changes on April 1 see this article from last week.

(Updates with Green Party response, link to Green Party document on levy scenarios)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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John does not see any savings in Health Education or Justice...they are all running 100% with no waste...no fat to be trimmed...she's all prudence and frugality....BS. 

I dont see Key saying that...he says no cuts, that doesnt mean changing the way the operate or making more effective....and there is still a lot of fat that can be cut off from the Clarke yrs

Education, Health Justice all 'save ' money in the long run, I certainly see here Key comes from not cutting those bugets....And DoC needs a huge shake up and revamp.

Why spend 100s of thousands translocating species when private breeders will do it as volunteer or cost  $15 per bird?

And Doc Complains they havnt the budget to maintain or bring many species off the endangered list.....

We have people who have the facities and experiese to breed  fish, birds, replties all over NZ...and they are shut out.

In effect  DoC is self sustaining by keeping endangered species on the list, let them become at risk THEN spend millions a big PR as to what heros they are....example the Orange kakariki program. ..3 pair of red kakariki will produce ove 110 healthy adults in 3 yrs, why is DoC still messing around in 10s....OH yeah they are the experts with degrees.

Weka....there is an ex DoC guy (lots of those) who can breed weka , give heaps for release  AND  export meat  bringing in millions of dollars, employ people, sell eggs....and releasing back into the wild knocks out rats and mice, cutting back on 1080.....and the cost of  killing vermin.

 

Have updated with response from Russel Norman, as well as a link to six scenarios for an earthquake levy presented by the Greens.

Cheers

Alex

This is a good debate on a levy v borrowing.

Norman terminates his idea just when it becomes interesting...at the part where he should point out the levy would come from disposable income and would therefore not be spent in the shops etc...but it would be used to help drive up the prices of building sector materials in Chch and therefore everywhere else...is that all he left out?..NO....he failed to mention the size of the mortgages families take on are a consequnce of the bubble economics and that only higher rates will see the silly game of chasing the bubble come to an end....and only then will there be the potential to save and invest in real productive areas....

Norman is Green on the outside and red on the in....he believes in the Keynesian madness...and must fully support Bollard's cheaper for longer...and would love top see the property ponzi madness go on and on......

Get this Russel.....higher rates bring fiscal prudence!...and they encourage people to save....and a reduction in disposable income leads to even less retail spend...leads to falling govt revenue...bigger fiscal deficit...and so back to having to borrow more!!!!!!

'Norman is Green on thr outside and Red  inside'

You can say that again.

'Norman is Green on the outside and red inside'

The socialist *****!

 "Finance spokesman David Cunliffe said the Government's cost-cutting was "an extreme and dangerous" response.

"By ripping out nearly a billion dollars of expenditure, National is bound to contract the economy and prolong the recession," he said.

"Kiwis are already struggling to make ends meet, and Kiwis who can't find jobs will find themselves even more deeply embedded in National's scrapheap." herald...

Words almost fail me that this blowhard socialist should have the gall to fail to admit it was his govt over 9 years that ensured the economy today was deeply in debt and recession.

'Blowhard' fails to mention that the "expenditure" he screams for, comes from borrowed money and that the cost of all of the govt debt would rise alarmingly if they do not cut back...and that the interest rates on all mortgages would rise as well...leading to a deepening of the recession.

But to Cunliffe none of this real economics matters. He is out to grandstand in an election year and with his leader on the ropes what better time to spout a load of total garbage.

He's a dick**** the recession is because of external factors ie the rest of the world is buggered....what we do wont significantly change the timescale. 

He seems to have forgotten that his Govn expanded the public sector un-neccessarily and wasted millions in social engineering projects instead of saving it. If labour had made a rainy day fund with the excess $ we would have a buffer, he didnt, now we are left with some hard choices because of Labour, we cant carry on spending willy nilly....because sooner or later our borrowing costs will go AWOL .....

WFF, instead of throwing money at the less well off the money should have been saved and target spent to build long term good....instead it was spent to encourage big families when the world already has an over-populaton problem....but oh wait Helen Clarke got a nice job........

thanks Labour......

NB National would have been just as bad.....somehow we need voters to get away from self-greed...ie voting because it benefits them personally as opposed to what benefits NZ.....which as far as I can see is what just about all the parties dont offer, except maybe the Greens....but then their leftie baggage is a bit hefty...

:/

regards

someone should add up the y.o.y. costs of borrowing (with guesses interest rates) and place the cumulative table in print.

Usually scares the pants off folk who don't get the exponential function.

 

I think he actually believes he has a good understanding of economics....why else would he spout so much crap....Imagine having him as Minister of Finance.....what a f%$#@! laugh.