In today's email we check out the surprises in the Australian budget - and what the IMF had to say about New Zealand.
1. A big Australian Budget
Australian Treasurer Scott Morrison unveiled a surprising tax-and-spend Budget overnight.
The biggest surprise was for the big four banks, which will have to pay a six basis point levy on large deposits, starting in six weeks.
The tax on banks with more than A$100 billion of liabilities will raise around A$1.5 billion or more than A$6 billion over four years, which represents around five percent of after-tax profits for ANZ, Westpac, National Australia Bank (which owns BNZ here) and Commonwealth Bank of Australia (which owns ASB here.)
"This represents an additional and fair contribution from our major banks, is similar to measures imposed in other advanced countries, and will even up the playing field for smaller banks," Morrison said in his Budget night speech.
The levy doesn't apply on deposits of less than A$250,000.
Morrison also announced a 0.5 percent increase in the Medicare levy paid by workers from July 2019 and a range of new levies on employers bringing in migrants on temporary work visas.
For more, here's a useful summary from the ABC.
Nothing similar is expected here in New Zealand's Budget on May 25, but the big new levy on banks and the levies on employers bringing in temporary workers may be thrown into the political debate before the election on September 23.
KPMG reported last month that New Zealand's banks increased their collective net profit by 11 percent to NZ$1.24 billion in the December quarter.
2. 'Remove the tax breaks'
The IMF's two big reports on the economy and the financial system yesterday included a raft of recommendations to strengthen the banking system to cope with any future property downturn.
But the IMF also repeated its recommendation that the Government remove some of the effective tax breaks for property investors that encourage ever higher house prices.
"Recognizing the steps being taken by the authorities to address the demand‑supply imbalance in housing markets, Directors generally highlighted that further tax measures related to housing could be considered to reduce incentives for leveraged real estate investments by households," the IMF wrote in its annual 'Article 4' assessment of the New Zealand economic settings.
"Such measures could help redirect savings to other, potentially more productive, investments and, thereby, support deeper capital markets," it said.
Academic economist Andrew Coleman's recent paper via Motu highlighted the tax advantages of housing relative to other investments and is a useful backgrounder on the scale of the issue.
Labour has proposed extending the two year bright line test for capital gains on property trading to five years, and has also talked about making it tougher for rental property investors to use negative gearing to reduce their tax bills. But Labour Leader Andrew Little has ruled out a Capital Gains Tax, although a Labour-led Government has foreshadowed a fresh Tax Working Group to look at the issue of taxing capital.
3. Deposit insurance?
But arguably the bigger of the two reports out yesterday from the IMF was its 92 page assessment of New Zealand's financial system stability. The IMF has not done one for 12 years and it has been eagerly anticipated by those in the banking community.
The IMF recommended the introduction of a Debt to Income multiple cap, the adoption of deposit insurance or an exemption from Open Bank Resolution for smaller term deposits, higher capital requirements for banks and a more intensive regulatory approach by the Reserve Bank.
Finance Minister Steven Joyce told reporters in Parliament the Government was open to the idea of protecting smaller deposits in an Open Bank Resolution situation, which is a shift in stance away from a rigid adherence to not have deposit insurance. The Opposition have been pushing for the adoption of a deposit insurance scheme.
Joyce also said he expected the Reserve Bank to start consulting soon on a Debt to Income Multiple cap, although there was no suggestion it would be introduced any time soon.
4. Labour's charter school contortions
Willie Jackson's inclusion on Labour's list is continuing to cause it political pain.
Newsroom's Lynn Grieveson reported yesterday on how Jackson's support of charter schools has forced a change in Labour's rhetoric at least.
Jackson is the CEO of Manukau Urban Maori Authority, which sponsors Te Kura Maori o Waatea charter school in South Auckland.
Labour's policy is to repeal the current legislation allowing private businesses and charities to apply for government funding to run charter schools (officially known as partnership schools).
Andrew Little had to spend the day explaining that a Labour government would negotiate with each of the currently existing charter schools about the basis on which they could remain open, provided they meet two bottom lines: having trained and registered teachers and teaching the national curriculum.
5. Show us the money
Newsroom's Shane Cowlishaw has taken a deeper look at how District Health Boards are scrambling to find efficiencies to deal with the pressures of a fast-rising and ageing population.
The Opposition argues the efficiency savings disguise real cuts in spending, while the government says the efficiency savings were also used under the previous Labour government.
This debate around health funding, particularly of mental health services, is heating up as we get closer to the election and Shane's piece gives an insight into the intense pressures rippling through the system.
6. Uber's future in New Zealand
She snared a rare interview with Uber's New Zealand General Manager Richard Menzies, who talked about Uber's plans outside of Auckland, Wellington and Christchurch, and for car-pooling and autonomous vehicles.
7. 'Private debt the problem'
Elsewhere on Newsroom, Thomas Coughlan, a London-based writer about economics and politics, has an opinion piece on the Government's recent move to a lower debt target.
Coughlan writes the government has ignored the bigger debt problem of household debt, and he compares New Zealand's situation to Ireland and Spain before their housing markets bust.
It's an often-repeated argument that has also been made by ACT Leader David Seymour.
But it is also an argument the government has used to double down on repayment of its own debt to reduce the overall vulnerability of New Zealand to turmoil on global markets.
New Zealand's banking system also can't be compared with those of Ireland and Spain, having much stronger capital levels. Ireland and Spain also had housing gluts and slower population growth than New Zealand.
8. One fun thing
Deputy Prime Minister Paula Bennett was in an ebullient mood on Twitter yesterday just after hearing fellow National MP Chester Borrows had been found not guilty of careless driving causing injury. Bennett had been in the passenger's seat of the car driven by Borrows that came into contact with TPP protestors after a breakfast event in Whanganui.
"wahoooooo," she wrote in response to news of the acquittal.
Earlier she had testified in the trial that a protestor had posted a picture of a dildo with 'Paula B' written on it, which she found "quite aggressive."
John Oliver will no doubt hear of the latest testimony. My apologies for yesterday linking to an older non National Party related incident. Here's the correct link.