KEY POINTS:
Those who hoped Michael Cullen's out-of-character pre-Budget demeanour was a ploy to disguise a rare show of boldness have not been disappointed.
The Finance Minister has gone where few expected, elevating his KiwiSaver scheme into a genuinely attractive workplace saving device. Nothing so radical as a matching employer contribution was anticipated. That, and associated tax credits for both employer and employee, catapults the KiwiSaver from a voluntary scheme of muted appeal into one that no savvy wage and salary earner will turn down.
As such, it is a cogent response to several bedevilling problems, not least New Zealanders' poor savings record, itself a substantial restraint on domestic investment, and the difficulties facing first-home buyers. The new, improved KiwiSaver should persuade people to reassess the widespread view that borrowing and buying residential property, not saving, is the best means of accumulating a retirement kitty. Indeed, those who snub the scheme will not now have even the solace of a previously planned lifting of tax thresholds.
For the Government, a particular benefit of this rebalancing of savings investments choice is that it reduces what has become a politically embarrassing surplus without fuelling spending. There is not the risk of higher interest rates implicit in tax cuts. In the past, Dr Cullen has bolstered his opposition to such cuts by cautioning that the cash surplus would soon move into deficit. This has not happened, and is now forecast for the four years from 2008-09. Borrowing has been pencilled in to meet predicted shortfalls averaging $1.4 billion a year without any compromising of fiscal objectives.
Many employers will be less than enthused about Dr Cullen's KiwiSaver solution, but their contribution will surely be a moderating influence on wage rises. The imposition on them is also limited in its scope, and should be viewed in terms of its potential to right an unbalanced economy, and to deliver a far larger pool of domestic capital.
However, employers can, quite fairly, feel a sense of anticlimax over the Budget's business tax package. It is a step in the right direction, but no more than that. The long-delayed reduction in the company tax rate from 33 to 30 per cent is finally delivered, bringing this country into line with Australia. But there is nothing ground-breaking or innovative in this or a 15 per cent tax credit for research and development, an area in which New Zealand lags badly. Australia and other countries already offer similar concessions.
Small businesses will also feel exasperated that compliance costs, one of their chief bugbears, have been shuffled off to the discussion-document netherworld.
Nonetheless, Dr Cullen's eighth Budget will be remembered first and foremost for his astute promotion of the KiwiSaver scheme as the answer to this country's lamentable saving problem. That has been identified by the OECD as a key contributor to this country's poor economic performance. This Budget's response is emphatic and encouraging.
