Budget previews

Dr Eric Crampton
Insights Newsletter
13 May, 2022

One key to happiness is not letting your expectations run ahead of what is possible, as that only leads to disappointment.

But what has been announced thus far makes for a depressing Budget Day.

You might have hoped that inflation running close to 7% might finally trigger a long-overdue overhaul of the income tax thresholds.

Minister Robertson has already ruled that out. Inflation-adjusting the tax bands would give more to richer people than to poorer people, so he will not do it. A worker at the median wage and salary income now hitting the 30% tax band on the last few dollars earned may not find that comforting.

If a business told staff that, because an inflation adjustment to wages would give more money to the executive team than to minimum wage workers, nobody will get any inflation-adjustment at all, workers would quit. New Zealand loses people instead.

The government’s ring-fencing of revenues from the Emissions Trading Scheme last year finally set the stage for a carbon dividend. It could follow Canada, rebating ETS revenues back to households.

It got my hopes up at least.

But adjust your expectations downward. They’ll be using it for an environmental slush fund, with no guarantee that any of the projects will do anything to reduce the country’s net emissions. At least it will be great for the country’s climate central planners.

What might have been a pleasant Budget Day surprise was instead announced at a pre-budget speech this week. Immigration New Zealand’s visa processing backlog is substantial, and the borders are reopening. Fortunately, the agency will be getting a funding boost to staff up and to digitise processes.

Treasury may need a similar boost. It has warned that the government’s new budget rules will require closer attention to whether spending delivers real value for money. And if the rumours of a cash-for-clunkers scheme paying people to wreck their older cars are right, Treasury needs stronger economist firepower.

Wellbeing gurus attuned to the Living Standards Framework might find a way of supporting cash-for-clunkers, but economists concluded that America’s scheme a decade ago was an expensive debacle.

One very welcome Budget Day surprise would be the absence of policies like cash-for-clunkers.

But we should not get our hopes up. Better to be pleasantly surprised than to need an even bigger glass of whisky to get through Budget Day disappointments.

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