Budget

Over the last year, loyal readers will have noticed my increasing annoyance with half-measures, missed opportunities, and genuine backsliding by the current National-led New Zealand government.

The budget was mildly better than I'd expected: it reduced my net annoyance with the current government. I'd put some chance on their reducing the top rate to 33 only in steps; that's why I was long on iPredict on both [33-35) and [35-38). I am disappointed that the budget includes overall spending increases and hope that Treasury's forecasters have things right on future growth rates and the return to budget surplus.

Matt Nolan points out, now that TVHE is back up (switch to blogspot, Matt :>) that going much further would have gone counter to election promises; however, all the half-measures and backsliding previously was, I'd thought, meant to build up political capital to be able to do something a bit bolder. Maybe locking in a schedule for increases in the retirement age. Maybe fixing Working for Families so that effective marginal tax rates on middle income earners with kids wouldn't be crazily high (yes, the middle income tax drop will help a bit there, and yes, they did fix one WFF rort in stopping folks from using rental property losses against income to be eligible for WFF).

Seamus wondered (chats in the hall, not on the blog) why they maintained a gap between the top marginal rate and the corporate rate: surely this still provides incentive for folks to hide income in companies if possible. I hope that it leaves open the opportunity to drop the top rate down to 28% sometime in future, but I'd put less than 2% chance on it.

It's been somewhat more fun watching the contortions of the left blogs trying to engineer situations in which middle or low income earners could potentially be left worse off on net. The GST increase, as telegraphed very clearly, was completely compensated with cuts to lower tier income tax rates. It's almost as though some analysts are running maximin: nothing in the budget matters except for the position of the worst off, and even a Pareto move would be terrible because the gains at the upper end could somehow have instead been channeled to the bottom end. The Council of Trade Unions also has been pretty funny. Writes NBR:

It was fundamentally unfair, CTU economist Bill Rosenberg said.

Someone on $106,000 a year would get a tax cut 10 times that of a person on the minimum wage, Dr Rosenberg said.

"Even worse, someone on 10 times the minimum wage gets a tax cut of $153.92 a week, which is around $150 a week more than the person trying to get by on the minimum wage."

He did not point out a person on the minimum wage at present paid taxes of $74 a week, while a person earning 10 times that paid $1737. A couple on the minimum wage who had two children would pay no tax.

He also didn't point out that the guy on the minimum wage is also unlikely to own a bunch of investment properties being hit with changed depreciation and reduced ability to write off property losses against other income. I'm mildly curious how many CTU members are on the minimum wage anyway.