22 May 2015

Budget 2015: 'It looks like good politics'

9:58 am on 22 May 2015

Whatever people might think about the substance of the Budget, the Government's political management cannot be faulted.

In the days leading up to the Finance Minister, Bill English, delivering his seventh Budget, the Government expertly managed expectations down, with a lot of help from the Opposition and a gullible news media.

Indeed, the Government was accused by Opposition parties of breaking its promise to make child poverty its key priority this term.

News media, desperate for a story, did the Government's job by framing a narrative that meant by Budget morning no one who followed the news would have expected any announcement on poverty reduction.

Not only was there a package, but the Government did what is almost unthinkable, (for National, at least) and raised benefit rates for beneficiary families by $25 a week.

National had for years consistently rejected suggestions benefit payment should be increased.

This is the first benefit rise, aside from cost-of-living adjustments, since 1972. The last time benefit rates were touched was in 1991 when the then-National Government slashed them.

Advocacy groups say the 1991 benefit cuts were responsible for pushing large numbers of beneficiaries into poverty.

The Budget announcement goes some way to redressing that but, according to the Council of Trade Unions economist Bill Rosenberg, it goes nowhere near to restoring benefit payments to where they were before the cuts.

Additionally, beneficiaries face one or two catches. First, they will have to wait nearly a year before they start getting the extra money, and it will be offset by cuts in accommodation support.

Bill English (left) and Steven Joyce handing out the Budget to parliament members in the house.

Photo: RNZ / Alexander Robertson

But, in total, the Government still expects most beneficiaries with children to be about $23 a week better off.

The other catch is that the work obligations placed on sole parents will be tightened. Under the changes, a sole parent will be expected to be ready for work once their youngest child turns three rather than five. They will also be expected to work up to 20 hours a week compared with 15 now.

The Government is also increasing the tax credits for working families, particularly those earning less than $36,350 a year.

It said it had focused this support programme on the children in greatest hardship.

Its poverty reduction package has been criticised for not going far enough, but it certainly dwarfs media and Opposition expectations before the Budget.

And it is likely to satisfy many members of the public concerned that more needed to be done to combat child poverty. At the same time, by imposing tougher work tests, National is likely to have pacified its more right-wing supporters who would baulk at raising benefits.

The plan is typical of Prime Minister John Key's approach to politics, where he has become adept at cleverly treading into his political opponents' territory, without upsetting his core constituency.

It is also typical of Mr English's approach to the public finances. Increased spending on poverty is almost matched by savings elsewhere, such as the decision to dump the $1000 kick-start payment for people joining KiwiSaver.

Mr English was able to spring a surprise in this Budget which, partially at least, obscured the Government's failure to get its books into surplus this year.

It also overshadowed an anaemic list of initiatives to strengthen and diversify the economy.

Steven Joyce (left) and Bill English leaving the 2015 Budget lock-up at Banquet Hall, Parliament.

Photo: RNZ / Alexander Robertson

While the forecasts remain buoyant about economic growth and employment there are still some worrying signs on the horizon.

Dairy commodity prices continue to plunge. Farmers will feel the pinch first before their lack of spending then flows into the country's provincial towns and cities.

Doubts remain too about whether enough is being done to rein in run-away house prices in Auckland.

The Labour Party leader, Andrew Little, has responded to the Budget by welcoming the increase in benefit payments but he has then questioned the Government's economic management.

Mr Little argues under National's policies the economy remains too narrowly based and will not grow fast enough to create the jobs which people on benefits ultimately rely on to get back into paid employment.

If his expectation of tough times ahead is right then this Budget might, in retrospect, be seen as a failed opportunity.

But if its forecasts are broadly right and its focus on poverty does make a difference then the Government will get the kudos.

In the short-term, at least, it is politically ahead.

And, looking ahead to 2017, National has left itself the option of tax cuts.

While Mr English warns the Budget norm now is for new spending to be restricted to about $1 billion dollars a year, in 2017 the forecast shows new spending totalling $2.5 billion.

Funnily enough that is election year.

While the economics might be questionable, it looks like good politics.

Read more stories on Budget 2015

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  • Budget 2015: What you need to know
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