ACT’s alternative budget

By Matt Nolan 14/05/2014

As of now I’ve only seen one alternative budget come out prior to Thursday’s Budget – the ACT party’s one (Stuff,NBR).  Good on them for releasing an alternative budget, I like to see that sort of thing.

However, I have to admit I was a little more than ‘very disappointed’ with the quality of the content.  If your view of the ACT party is fragile, I would suggest not reading this post.  Anyway, here we go.

Here is the core of what was put in the alternative budget:

  1. Sell assets to pay down $40bn of debt (note, asset values are actually well below this – and no matter what this it implies no change in the real net asset position of government).
  2. Dump tourism, pacific island affairs, and woman’s affairs and “other spending”:  $4bn cut (if you go into the details, I am not so sure that society would view all those things as wasteful …).
  3. Raise super age to 67
  4. Cut top tax rate (and corporate rate) to 24%.
  5. Increase abatement rates on WFF for those earning about $48,000

The super age comment is fair enough, and a right leaning party should indeed be making the case for fewer transfers, lower taxes, and smaller government.  However, the actual policy document doesn’t really make any sort of case for why we should change the implied equity-efficiency trade-off in society, and instead relies upon ridiculous made up estimates of what will happen, hiding the things they will cut till later in the document (after calling them wasteful) and generally using platitudes instead of discussing trade-offs.

The Stuff article says that estimated this would lift “economic growth by 5%”.  Either this is a tiny change (0.15% in the level of GDP), or they mean it will lift the level of economic activity by 5% in the long run.  However, this is just a straight typo by stuff – ACT’s actual documents say “increase long-run growth to 5%”.  This is simultaneously different, and even more unlikely – when they say:

Increase long-run economic growth from less than 3% to around 5%

They are talking trash.

Now let’s cut to the chase here.  I would like to take all parties seriously, but this is a frankly ridiculous budget that makes claims that are totally unsubstantiated – anyone with any experience in looking at the data, and the impact of policy, may say that lower tax rates will increase the level of economic activity – but the magnitude implied here indicates that the ACT party has no idea about real economics and is leaning solely on ideology (hence why most of the document is arbitrary catch phrases).

To be blunt, this document might use economics terms but parts of it are frankly economically illiterate.

This is a frankly embarrassing budget, I’m sorry ACT but this sort of thing implies to me – as a complete independent voter with economic expertise – that you have no interest in the welfare of New Zealander’s or actual facts.  This is a pity, as the party was initially set up to focus on realistic trade-offs – just with more “right leaning” value judgments.  There is a role for this sort of party, both in parliament and in public debate – but if this alternative budget represents the ACT party I don’t believe there is any role for them.

ACT, you are using economic language, and loosely pointing at trade-offs we SHOULD be discussing.  But the claims you are making around them are so ridiculous that I fear you are doing more harm than good.  I find this disappointing.

Sidenote:  If I was going to analyse the policies, I’d note that the decision to increase abatement rates for WFF’s will reduce labour supply incentives – and will actually detract from growth in any reasonable specification.