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Sunday, May 23, 2010

Wendy & Tarquin - Some reflections on the National Party's 2010 NZ Budget


INTRODUCING WENDY & TARQUIN (as portrayed initially in the Dominion Post)

WENDY

Wendy is a nurse earning $50,000 per year – about the average wage. She pays $200 per week for her mortgage and manages to save $50 per week. She does not get any government income assistance.

Under the May Budget, she gets an Income Tax Cut of $29.42 per week but she pays an extra $11.73 per week in GST (i.e. Goods and Services Tax). Wendy is ostensibly $17.69 per week or $919.88 a year better off.

TARQUIN

Tarquin is a consultant / executive earning $180,000 a year. He pays $500 a year for his mortgage and saves a further $500 per year. He spends the rest of his after-tax income on items that attract GST.

Under the May Budget, he gets an Income Tax Cut of $146.73 per week but he pays an extra $29.93 per week in GST. Tarquin is $116.80 per week or $6,073.60 a year better off.

‘DRILLING DOWN’

Treasury expects inflation to be 5.9 percent in 2011, and 2.4 percent in 2012 and 2013. That is the consumer price level in 2013 will be 11 percent higher in 2013 than consumers face in 2010.

Treasury also expects Real GDP to grow by 3.2 percent in 2011, 3.1 per cent in 2012 and 2.9 percent in 2013. That is the economy as a whole will be 9.5 percent bigger in real terms in 2013 than it is in 2010. This growth will be distributed between earnings, rents and profits but it is reasonable to assume that earnings in the private sector (and in therefore in economic consultancies like Tarquin’s firm) will rise in line, by 9.5 percent.

By contrast, Wendy has been told that there is ‘no more money in the kitty’ and that public sector pay has been capped - she cannot therefore expect a salary raise over the next 3 years.

The overall results are that:

Wendy’s after-tax (income tax + GST) income will rise from $32,819 per year Pre-Budget to $33,739 per year Post-Budget in 2010. But inflation will reduce Wendy’s net after-tax income (in 2010 $) to $28,738 per year by 2013. She will be about 12.5 percent worse off in real terms

In contrast, Tarquin’s after-tax income will rise from $98,843 per year Pre-Budget to $104,916 per year Post-Budget in 2010. However, as inflation will only be partly offset by expected salary rises growth over the coming three years, Tarquin will see his after-tax income gradually fall. By 2013 he will be receiving slightly below what he was getting Pre-Budget in 2010 in net terms (though the difference in spending power of $367 is largely immaterial at his salary).

THE ECONOMIC DRILL BIT BREAKS THROUGH TO THE PERSONAL

Wendy has only been a qualified nurse for 2 years. She received a BA in History and Politics from Otago and worked as a Librarian for 4 years. She was made redundant and switched to nursing. She went back to university in Wellington to get the mandatory Bachelor of Nursing qualification.

She is highly idealistic about nursing though shell-shocked by work-loads, seemingly arbitrary management practices and the increasingly micro-regulated and litigious professional environment.

Well aware of the roles that the welfare state and the benefits system play in the lives of marginalized groups, including children and old people, she is concerned about future cuts in health sector expenditure.

She has ageing parents. Her dad was a teacher and her mum was a nurse in Southland. The family has been there since the 1880s. She has talked with her parents about moving to Gore to help look after them as they become infirm – though a new man and rapidly unfolding events may well change that.

And she is worried that her mortgage costs are likely as the Reserve Bank will have to raise interest rates and expects that she will have to tighten her belt and shelve her superannuation saving plan.

She is also aware that rises in user charges are also planned for many government services – and that she will be asked to deal more and more with private sector providers who are purely profit-motivated and free of any responsibility for delivering public goods across all sections of society.

She sees and deals with dreadful things everyday but she is generally cheerful and smiles a lot.

Tarquin came to New Zealand as a child. His parents are from the elite in a Developing Country. They wanted a 'better life' for their children, unchallenged by being surrounded by visible poverty. They had accumulated money back home both from their aristocratic inheritances and their business ventures in collusion with government officials.

They were able to buy a large house in Fendalton and remain independently wealthy. They were indifferent about exactly which of the English-speaking countries they settled in – but were very happy to be accepted as business migrants to New Zealand.

He was privately educated at Christ’s College, Christchurch and received a Bachelor of Commerce degree from Lincoln University. He is also a Chartered Accountant.

After leaving university he worked for several years for a major financial services group in New York that has recently been implicated in some of the shenanigans associated with the global recession.

Asked about the Budget, Tarquin’s view is that it ‘was the most positive change in direction for a decade’.

Tarquin regards himself as a marketable commodity that commands a world price. He is well aware that he can secure high-paying jobs elsewhere in the English-speaking world and has already successfully worked in Australia as well as the USA.

He has little interest in the history and evolution of institutions in countries such as New Zealand or in the political balances that provide the relative social stability and freedom of expression that he and his parents take so much for granted.

He is unimpressed with the notion that voting provides a means of revealing the preferences of society as a whole, with respect to trade-offs between economic growth and social objectives. He believes that enlightened bureaucrats and advisors are much better at making public choices, as the velvet gloves of Adam Smith’s Invisible Hand – linked arm in arm with the business community.

He is endlessly affable, urbane and charming, though slightly condescending.

Despite the fact that he went to Lincoln University he has never been on a New Zealand farm. Nor has he ever visited poor suburbs of Christchurch like Aranui. However, he is well-liked by the Members of the NZ Round Table who are major clients of his employers.

He has already spent the extra money that he expects from the Budget on overseas travel, taking advantage of the high value of the exchange rate. Most of his $26,000 per year saving, he places abroad in a portfolio that mixes North American and Asian financial instruments.

He is currently a bit at sixes and sevens though as a result of a romantic entanglement.

Asked to contribute to the Health Policy course at Victoria University, he gave a series of lectures on the economics of morbidity. In the audience was a young nurse doing some of her mandatory annual training. She was chubby, blond, cheerful and down to earth. The rest as they say is ‘history’.

Having recently been offered an appointment by the World Bank, Tarquin has plucked up the courage to invite Wendy Connor to accompany him to Washington as his partner. She has said ‘yes’. There is only one problem – she will not be able to work in the USA.

Fortunately, her BA in History and Politics (for which she received a First) has come back into play and she has been accepted on the doctoral program at Georgetown University – she and Tarquin will go halves on the fees.

It’s not quite settled yet but she has been corresponding in advance with her supervisor. The working title for her PhD thesis is:

‘Growth, Distribution and Fairness in the Fiscal Process – with special reference to New Zealand’

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