Government faces challenges on finances


When Prime Minister Jacinda Ardern announced during last years election campaign that Labour would form a Tax Working Group if elected, many thought that this was a cop out mechanism for avoiding the heat on tax. Whilst not being one of these people, I did wonder how comprehensive Labour’s planning on tax had been. As we approach  the Fiscal Budget of 2018 next month, those concerns remain, but some definitively positive signals are also emerging.

The challenges are significant. Not all of them though, involve raising/lowering taxes, introducing new financial tools that affect taxpayers to prop up the books.

Some of them are about making corporate tax evasion more difficult to achieve by working with other nations to ensure corporates like – but not limited to – Apple and Facebook pay what tax they owe. Others are about making sure that tourists who come to New Zealand have some sort of medical insurance to keep the cost to the taxpayer in check.

Not all of these challenges will be or should be addressed in the coming Fiscal Budget. Some will require amendments to tax law and greater oversight.

At the last election Labour said that its plans, which did not signal income or business tax changes, had been costed and found to tally up. Opposition Members of Parliament claim Labour cannot possibly afford their plans for New Zealand without substantial tax increases. Some go so far as to suggest that by cancelling planned tax cuts, the Government has in effect announced a tax increase, something Labour denies.

My own concerns are that Labour, in ruling out business and income tax changes, has left itself open to a budgetary blow out. This would lend credibility to the likes of former Treasurer Steven Joyce’s claim of a budgetary black hole, and Labour being amateurish in budget setting.

However there have been a number of pleasing announcements that suggest to me that a degree of control has been exerted. One of those announcements is that there will be a royalty on the use of water for commercial and irrigation purposes. Another is the introduction of a tourism infrastructure fund. It will take the shape of a N.Z$25 levy placed on non citizens and residents visiting New Zealand. In past articles I have called for a levy to be placed on such visitors, as it is a useful user pays scheme that reduces the pressure on Regional, District and City Councils, whose rates are already subject to considerable pressure.

Of course, all of this said, Labour have yet to actually introduce a Fiscal Budget simply because it is not time. The Fiscal Budget for as far back as I can remember has always happened in May. I accept therefore that it is a work in progress and one not to be judged until the Treasurer Grant Robertson presents his first Budget on 17 May 2018.

 

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