The MoF has put out his pre-budget feelers while setting the date for the Key Government’s second budget at 20 May. I’m pleased to see the above statement, albeit hidden at the end of the press release, especially after seeing this disaster in a Treasury working paper:

Ugly, isn’t it? The red line is what we can afford, the blue line is the trend we’re spending on. So while Mr English might talk about jobs and growth (and don’t get me wrong, these things are important) the real underlying issue he must address is our unsustainable rates of spending.

Perhaps the most frustrating aspect of the Tax Working Group report isn’t the report itself, but the course it sets our economic discussions on for the next three years. Our beloved Minister of Finance will make raising GST and reducing income and corporate tax rates as if it’s a ballsy change that will have a deep impact. Certainly, it will help move the burden of Government spending off the top 10% of taxpayers, who pay 76% of all tax, a situation that inherently discourages people to earn higher incomes and increase the nation’s wealth.

FCK takes the view that while raising GST to cut income and corporate tax rates is a good move that will increase the efficiency of our tax system, it’s only a half measure, and only part of the answer. To have any real impact, Mr English must cut wasteful spending and idiotic tax-churning policies, the worst of which is Welfare Working For Families. As Roger Kerr points out:

…taxes will have to rise to reduce prospective budget deficits and levels of public debt if spending is not cut.

All of this shifting the tax burden will be for naught if we don’t reduce our spending. Ironically, the previous Labour Government actually did a reasonable job at reducing the government’s share of spending as a part of GDP from 1999 – 2005. From 2005 – 2008 they greatly increased spending at unsustainable rates. For that I blame Winston Peters, students and WFF.

Treasury’s forecasts have shown New Zealand is in for another 5 years of government fiscal deficits, peaking in 2010 at 4% of GDP. The Finance Minister has ’signaled’ spending cuts. That’s great for getting public buy-in and all that, but what’s really need is action. Despite what Labour is spinning, the reality is that New Zealand’s current level of government spending is unsustainable. FCK suspects the PR buzzword in the 2010 Budget will be “reprioritisation”, as Bill grapples with which spending to cut reprioritise and where. Here’s a couple of ideas Minister.

The Telegraph reports Ireland’s Minister of Finance has announced major spending cuts – welfare, capital expenditure and public sector earners (who face pay cuts of up to 20%). Even Brian Cowen, the Irish Prime Minsiter, is taking a fall in salary from £259,000 to£207,000. The Irish, unlike New Zealand, have already been through a credit downgrade. Their economy is really in the poop, and is expected to contract by a whopping 7.5%.

I’ve previously covered areas where I think cuts could be made in the 2010 budget – useless departments such as the Families Commission, Electricity Commission and Tertiary Education Commission being just three. However, these departments are just drops in the ocean compared to major liabilities Labour saddled us with in its last term in office (when spending really took off). I’d suggest three things Bill English can do in the 2010 budget:

• Go on a Quango hunt for more useless government departments – such as the Ministry of Women’s Affairs, and merge the functions of other smaller ministries (e.g. Ministry of Pacific Island Affairs should be part of MFAT);
• Abolish Working for Families and the Independent Earners Tax Credit and adjust tax thresholds so lower income earners are no worse off;
• Reduce company tax to below the Australian rate (they’re meant to be lowering it) and the top rates of income tax, increase GST by 2.5% to partially fund this.

Abolish the Families Commission. Seriously, a commissioner can’t make a decision on a policy because she’s not Maori? That’s beyond ridiculous. The commissioner is either lazy or stupid. I suspect both. Jan Pryor, you should resign and stop wasting taxpayers’ money.