Budget 2018

Yesterday, I attended my first budget lock-up.

It was less interesting than it sounds.

But egads the Treasury staffers there are good.

For three and a half hours, you can look at the budget and ask any of dozens of Treasury people floating around the room about how different numbers were established. If they don't know, they know the person in the room who does know. And if nobody in the room knows, they'll phone the person back at the office who does know and will get back to you within minutes.

It is simply amazing. If I do it again, I'm going to have to come into the room with a big long list of all the things I always wanted to know but didn't know who to ask. Because they'll sort every one of them.

The one I was particularly curious about was the tobacco excise forecast. The government earns a lot of money from tobacco excise. And the government has now legalised vaping. The prior path of tobacco excise hikes would have had total tobacco tax revenues increasing a bit further despite volume declines. But with the availability of new and safer substitutes, the prior relationship between prices and consumption wouldn't be reliable.

So I asked! The tobacco excise forecast is based on an assumption of a two percent reduction in volume per year, based on historic trends. If those trends continue, and if excise freezes after the currently scheduled round of hikes, then excise reaches $1.86 billion by 2021 and starts falling a bit thereafter. I doubt that 2% per year volumetric drop is the right forecast as vaping becomes more mainstream and legal-legal instead of just pretty legal, but I'm not sure what the right forecast is. If consumption drops by 10% per year instead of 2% per year, though, you pretty quickly wind up with half a billion less in excise revenue than you might have been banking on. What has been pretty inelastic demand can turn pretty elastic once substitutes become widely available.

I'd provided budget takes for the Dom Post, the Spinoff, and this week's edition of our Insights newsletter. I tried to hit on bits other than the usual "This is who gets what" stuff ably handled elsewhere.

I also had a bit of a chat with Andrew Dickens at Newstalk ZB, but technical meltdowns at their end meant things ended at the commercial break rather than continuing afterwards. Alas.