Perhaps too much is expected of the budget each year. Built up for months beforehand, it is a landmark day and a key opportunity for the Government to set out its stall. But in a fast-changing world, the plans outlined will certainly change, by accident or design, or more likely both. And such is the complexity of modern political administration that all areas of tax and spending policy cannot possibly be covered in two speeches.
The Coalition made some significant moves, nonetheless. They introduced an income tax package which will deliver the biggest cash gains to middle and higher earners. After not increasing tax bands and credits last year, there was a bit of ground to make up. There was more than half an eye here on the public sector pay talks, though these still threaten to be difficult.
The spread of the gains from the tax changes are already being debated. But perhaps the bigger issue is that the Coalition has no wider strategy here than to depend on a continued increase in corporate taxes. Despite repeated warnings from the Fiscal Council and others, spare revenues are used to hike spending and cut taxes elsewhere. The tax base is gradually shrinking further.
The bulk of additional resources continue to go to spending. The Coalition has upped investment significantly and delivery here remains the key issue, notably in social and affordable housing and in projects such as the Metro. Extra current spending was spread far and wide, well spent in some areas, but more questionable in others.
RM Block
A welcome drive is underway to try to control public spending growth, though whether it can succeed remain uncertain. This needs to happen to lower the risks to the public finances in future years. Continuing to increase spending at 9 to 10 per cent a year would be asking for trouble, yet big overruns in 2027 remain possible.
There are also questions about climate policy. Putting carbon taxes on hold for a few months is understandable but committing that some will not rise for the rest of the Government’s term raises questions about policy direction. The economy has to adjust, sooner or later, to higher fossil fuel costs, even if there is uncertainty about how high they will go. Trying to hold down prices may be like trying to hold back the tide; it is disappointing that there is not a clearer strategy here.
The Government, like many others, is running to try to keep up with cost-of-living pressures. There are tough decisions here, for sure, but this is not an excuse for a lack of longer-term thinking.
And while it has some welcome measures, the budget gives the impression of a Government responding to events, rather than shaping them. Given the international upheavals this is understandable, to an extent. But continuing to base a public finance strategy on the health of a half dozen multinationals does not look wise.
