Budget 2009 - a band aid for the economy
It's what didn't happen in Budget 2009 that has dominated the headlines. With a backdrop of slumping tax revenue there weren't many rabbits to pull out of the hat - without borrowing heavily. Time will only tell if Finance Minister Bill English's first Budget was a success.
The ultimate aim of the Budget was to ride us through the recession - relatively intact. It's often forgotten that salaries are most people's single biggest source of wealth. Unemployment is expected to rise from 5% now to 8% by the end of next year. So the wider economy and its support for the jobs market is of extreme importance for personal finances. So instead of a list of handouts to every man and his dog, finance minister Bill English's first budget doled out restraint. Tony Alexander of the BNZ said something very similar. I wanted to quote him. But felt that might not be appropriate because he is a bank economist.
The slashing of proposed tax cuts over the next two years brought cries of false promises and election lies in online forums. Other direct implications for the average person included:
The Budget, says Deloitte's CEO Murray Jack was relatively orthodox. It didn't reform the tax system, it didn't slash and burn government spending and it didn't pump money into schemes to prop up the economy as some overseas governments have.
When it comes to goodies one of the few on offer for the general public is the $1,300 grant to have insulation installed into homes built before 2000. That's expected to cover a third of the cost of installing under floor and ceiling insulation.
There's another $500 payment on offer for the installation of wood pellet burners or heat pumps, which are low polluting and energy efficient. That's in addition to the subsidies already on offer to landlords to insulate rental properties. The best deal is for landlords of low income tenants. The insulation offer is one of those things you should grab while you can as there is no guarantee it will last.
But the good news for now is that the government guaranteed the pension for everyone from age 65, at 66% of the net average wage for married people.
Having said that , many members of the general public commenting online have questioned whether the country can afford this "gold-plated" superannuation without pre-funding and without our country's productivity rising.
The only material change to Kiwisaver is the scrapping of mortgage diversion - which enabled people to divert some of their contributions to pay off their mortgages.
Although little used with only 600 people signing up according to the Inland Revenue Department , mortgage diversion certainly made a lot of sense for home owners to pay off a chunk of the mortgage this tax-efficient way - because it effectively came from pre-tax income, not post tax. As one Sunday newspaper put it: the mortgage diversion option was "too good to last". Ironically the cancellation came just when some homeowners are really struggling to meet their mortgage payments.
Finally ratings agencies Standard & Poor's and Moody's agencies have the power to wreak financial havoc on us. Had they downgraded New Zealand's credit rating following the Budget they had the power to add 1.5% to borrowing. That's $3,000 per year on a $200,000 mortgage.
Diana Clement
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