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How not to budget

New Zealand's political history is a graveyard of Finance Ministers. Thomas Coughlan looks among the tombstones in search of advice for Grant Robertson.

Today at about 2pm Finance Minister Grant Robertson will stand in Parliament and move that the Appropriation (2018/19 Estimates Bill) be read a second time.

Ignore the dull, parliamentary language. This sentence is the most significant utterance that will be heard in the House all year. 

The Appropriation Bill is of course the Budget. The stakes are high. Should the bill fail to pass, Parliament would likely be dissolved and fresh elections called. This happened in Australia in 1975, triggering a constitutional crisis. 

But Robertson probably hasn’t lost any sleep worrying a controversial Budget could bring down the Government. The Government stitched-up tomorrow’s vote way back in October. 

Labour’s coalition and confidence and supply agreements with New Zealand First and the Greens mean those parties have pledged in advance to vote for the Budget — ‘supply’, as in ‘confidence and supply’ is a synonym for the budget. 

But that doesn’t mean the lucky MPs occupying the treasury benches should rest on their laurels. Should this Government fail to win re-election in 2020, there’s a good chance that failure will be traced to today's Budget.

Black Budget 

Robertson’s Labour party holds the dubious honour of having formed the only one-term Governments in post-war history. The first of these unlucky Governments was voted out over an particularly bad Budget in 1958.

Labour’s infamous 1958 Budget now carries the ominous moniker as the Black Budget for its ill-conceived tax hikes on nearly all forms of mid-century joy: tobacco, alcohol, cars, and fuel.

After winning office in 1957, the Labour Government under Walter Nash and Finance Minister Arnold Nordmeyer faced a looming crisis. The collapse of butter prices in Britain meant the Government had precious little to spend on its expensive social programmes.

Instead of walking back election commitments, Nordmeyer followed Treasury advice and pushed up taxes across the board. Income tax hikes hurt the single and childless, meanwhile duties on beer, spirits, tobacco, and cars were doubled. There was no escape from new taxes — not even the dead were spared as Nordmeyer ratcheted up estate duties. 

The Government should be aware of parallels here. In its determination not to raise income taxes or institute any meaningful capital gains tax before 2020, this Government is also relying on taxing enjoyment and essentials to pay for its promises.

Tobacco excise will continue to rise until 2021, when it will be netting the Government $2.2 billion a year. Taxes on fuel will rise by more than 20 cents a litre in Auckland. Even the humble ASOS shop will be brought within the ambit of the taxman as goods purchased online are now subject to GST.

This is good news for the Government. It announced that it was baking an additional $700 million over the next four years from changes to the tax system. 

Robertson will hope his Budget doesn’t turn around to bite this Government as Nordmeyer’s did. He was forever derided as a ‘Presbyterian wowser’, and his Budget was remembered by the unhappily sober voters at the 1960 election who handed the reins to Keith Holyoake for the next twelve inebriated years. 

Voters learned to expect unpopular hikes in prices around Budget time. It was once not uncommon for motorists to fill their tanks with gas the day before the Budget in anticipation of a fuel excise hike. 

The days of surprise increases on much-loved pastimes are probably over. Prime Minister Jacinda Ardern told reporters on Wednesday that this Budget would likely be remembered for being “predictable”.

Voters and markets have come to expect that most Budget surprises are carefully signalled in the run-up to Budget day. 

No Government wants to deal with the bad press of a massive currency fluctuation following a poorly-received Budget, so ministers often trickle announcements of new spending weeks in advance while leaving a few headline-grabbing surprises for the day itself. 

The mother of all Budgets 

The Budget that has had the most lasting impact in modern times was Ruth Richardson’s infamous 1991 Mother of All Budgets. 

The Richardson Budget slashed unemployment benefits by as much as 24 percent. The effects were severe.

A review of the changes in income between 1990 and 1993 concluded that household income of beneficiaries fell from 72 percent of the mean equivalent disposable household income to 58 percent in 1993.

The Budget promoted savings and fiscal prudence, but cuts focused on lower income families were greater in dollar terms than savings from the top 20 percent of households. 

The Budget drew down the curtain on Ruthenasia, the middle part of the three-act neoliberal play, ushered in by Rogernomics in 1984, which its curtain call with the end of Jennycide in 1999. 

But Richardson’s debut as Finance Minister will help shape the Budget tomorrow. Richardson’s Fiscal Responsibility Act 1994 initiated many of the reports that will now clutter the tables of the Parliamentary Gallery. 

Repealed by Michael Cullen, the responsibility for the Government to measure its Budgets against long-term fiscal plans as outlined in the many EFUs (PREFU, BEFU, HYEFU) dates back to Richardson’s time. The intent was to ensure the Government’s books remained in surplus over the long term and Governments always had a sustainable path to GDP growth. 

Tomorrow’s Budget will itself see the end of an era. 2019 will be usher in the first ‘Wellbeing Budget’. Not unlike Richardson’s Fiscal Responsibility Rules, this Government’s new wellbeing measures will seek to shape future Budgets by assessing Government spending against measures of wellbeing.

Changing the Budget goalposts next year is likely to be more influential than anything announced on Thursday afternoon.

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