Great tax incentives but little more for Agribiz

Budget - great tax incentives but little more for Vote Agriculture

Federated Farmers is welcoming Budget 2010 with some misgivings about the ongoing growth of Government spending and the impact of higher Government charges, particularly the Emissions Trading Scheme (ETS), will have on inflation

“The Government’s ambition to rebalance the economy in favour of the tradable sector is admirable,” says Philip York, Federated Farmers economics & commerce spokesperson.

“The Government’s emphasis on encouraging sustainable growth, based on productivity and competitiveness is strongly endorsed and we welcome a much improved economic and fiscal outlook.

Vote Agriculture
“Federated Farmers is supportive of the Joint Border Management System (JBMS) between the Ministry of Agriculture and Forestry and New Zealand Customs Service.

“Yet the $5.25 million in new spending for New Zealand’s largest export industry seems small compared to what other Ministries won. $5.25 million for biosecurity seems miniscule given it’s protecting $25 billion in annual exports our economy depends upon. While we call for spending restraint it’s also about wise investment and biosecurity needs more funding.

Tax cuts
“Farmers will welcome the hefty tax cuts being delivered in this Budget and we need it. After tax profitability on farm currently averages a mere 6.2 cents out of each dollar we generate. Being an average figure there will be a lot of farmers drawing up their farm budgets in red ink. Farmers won’t be the big tax winners some people might assume us to be.

“Federated Farmers is a big supporter of reduced personal and company tax rates. We are not averse to increasing GST as we consider it better to tax consumption rather than income.

“Federated Farmers supports closing tax loopholes. We are not necessarily opposed to the changes to the depreciation of buildings as most farm structures have an economic life of less than 50 years.

“Federated Farmers also won a major victory for agriculture with the Budget ruling out imposition of a land tax. We are extremely happy to see the Government has listened to us.

Size of Government and ETS
“Yet Federated Farmers is concerned core Crown expenses will increase by nearly $6 billion or nine percent over the coming year. This increase is huge, given talk of spending restraint.

“But $1 billion of this increase arises from the ETS and rams home Federated Farmers deep unease that it’s a fiscal back hole. Federated Farmers maintains there will be a $527 million impact on businesses and families. But interestingly in this morning’s Dominion Post, the office of the Minister of Climate Change said the impact was ‘only’ $350 million. Yet by two o’clock and the Budget, the ETS’ impact had expanded out to $378 million. Will the real figure please stand up.

“Although the fiscal outlook is improved, it is still going to take several years before we return to surplus in order to bring Core Crown Expenses back to below 30 percent of GDP, which is where we think it must be. The Greek tragedy is a warning where spending swings out of control.

“We strongly believe fiscal policy must complement monetary policy and the Reserve Bank Governor has repeatedly called for ‘fiscal consolidation’ to help him do his job of controlling inflation. This has to mean doing more to get spending down.

Broadband
“We are enthusiastic about the prospect of broadband but remain concerned Government is still prioritising urban over rural. While Federated Farmers lobbying won more funds for rural broadband, it’s still inequitable to what’s being committed to urban broadband.

Inflationary pressure
“The Budget also reveals that increases in Government taxes and charges will push the rate of inflation to nearly six percent over the coming months. This will put added pressure on the productive export sector when we are just finding our feet.

“Although the Reserve Bank can and should ‘look through’ the 2.0 percent impact on inflation from the increase in GST, it may not be easy to ignore the ETS. This will add 0.4 percent to inflation, with increased tobacco excise taxes adding 0.5 percent more and ACC levies adding 0.1 percent.

“If the Reserve Bank is to tighten monetary policy due to higher Government spending and higher government charges, like the ETS, then we fear it could add further upward pressure on an already over-valued Kiwi dollar – this is the last thing the tradable sector needs.

Observations
“Federated Farmers is very disappointed the Regulatory Responsibility Bill, something designed to introduce discipline to regulation, continues to languish. There’s actually no need for further consultation, as stated in the Minister’s Budget speech. It’s a high quality well drafted Bill so let’s get on with it.

“All in all this is a Budget that looks good but it is very much work in progress with more needed to be done if we are to get the tradable sector led growth we all want,” concluded Mr York.

ENDS

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