Tax cuts, more money for infrastructure, and catch-up spending on a raft of areas where it had previously been frozen. All well and good, says economist Shamubeel Eaqub, but what about housing?
Read all our Budget 2017 coverage here.
Steven Joyce delivered his first Budget and it was carefully calculated to maximise impact in an election year. It spent more on both traditionally National and Labour policies – reducing room for criticism by opposition parties.
The centrepiece of the budget is income tax cuts, beginning in April next year, after the election. It will give the average income earner an additional $26 more per week. The tax cuts are via increases at thresholds or levels of income the graduated rates of taxes are imposed. Increasing thresholds mean that higher income earners will benefit the most.
Income tax cuts were well signalled and will be welcomed by most voters. While polling suggests tax cuts were not a high priority, in reality they matter a great deal in voting behaviour. Delivering the tax cuts in an election year makes perfect political sense.
Other areas of spending were largely catch-up spending. Spending in recent years in many government services were capped, but population and cost pressures continued to build. This has shown up in lots of different areas, including in health, mental health, emergency housing and social housing. This catch-up is very welcome, but they should not have been cut in the first place.
Increases in infrastructure spending is welcome, but we need to do a lot more.
The government is weirdly obsessed about not borrowing, even when borrowing costs are at historic lows and we need to increase infrastructure spending by around half again to close our infrastructure deficit in the next decade.
The spending on infrastructure remains myopically focused on roads, but rail is getting some more funding.
There are hints of using public-private-partnerships (PPPs) to build infrastructure. Seeing the dismal experience of PPPs in Australia, I would much prefer the government to borrow to fund infrastructure spending.
There were two big misses: housing and the social investment approach.
There was more money for the accommodation supplement and emergency housing. Both bottom of cliff stuff. There is no material and aspirational investment in significantly boosting housing supply.
While the government has talked a lot about its social investment approach, it has allocated more money to building prisons, and subsidies for film-makers than its social investment approach package.
There were so many announcements and so much cash sprayed around in modest quantities that it will be too hard to make sense of for most voters. For me, it was a classic election year budget – something for everyone and the promise of a tax bribe if you return them to power.
Shamubeel Eaqub is an independent economist and commentator.
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