26 May 2012

Is Bill's Budget sensible - or just drab?

10:20 am on 26 May 2012


After three years of slow growth, the Finance Minister says the Government is still focused on building a brighter future for all New Zealanders.

Radio New Zealand's political editor Brent Edwards analyses the 2012 Budget.

Bill English on Thursday delivered his fourth Budget, saying it is about investing in New Zealand's future.

But there was little new investment as he stuck to his promise of not increasing total spending. Instead, the initiatives he outlined - most of which had already been announced - were financed by making spending cuts elsewhere or by closing holes in the tax system.

On the basis of that, the Treasury is still forecasting that the Budget will be back in surplus - albeit by just a modest $197 million - in the 2014-15 financial year.

There are, though, huge doubts over its economic forecasts. To get back to surplus, the economy will have to grow more strongly than many analysts believe possible.

The Treasury is forecasting the economy will grow by 3.4% in the year to the end of March 2014. Even its downside scenario based on an economic meltdown in Europe has the economy growing 2.6% that year.

Given the international economic uncertainty, these might be heroic forecasts. If the Treasury's downside scenario is correct, then the Budget would not get back into surplus until possibly 2016/17 - or even later.

For a government which has campaigned strongly on getting back to surplus, it is dependent on the Treasury getting it right. But, based on the Treasury's record on forecasting, that might be a forlorn hope.

What will the savings achieve?

There are also questions about the savings the Government will achieve from spending cuts and how much it will raise from tax changes.

Take, for example, the move to scrap tax credits for those who earn less than $9880, for those who pay for childcare and housekeeping and for children who work part-time.

Bill English says the Government is building a more productive and competitive economy.

Bill English says the Government is building a more productive and competitive economy. Photo: NATIONAL PARTY

In total, the Government says that will save $117 million over the next four years. Yet it does not know how many people are affected by the change. How, then, can it be sure about the savings?

It is clear some of the numbers in this Budget are not robust and, given the forecast surplus in 2014/15 is only $197 million, it will not take much of a discrepancy to quickly turn that into a deficit.

But the Government still has some room to move, however difficult that might be. There is still an allocation of $800 million for new spending for the 2013 Budget and $1.1 billion the year after.

Just as it abandoned its allocation for new spending in this Budget, it could again next year deliver a zero Budget. That, though, will get more difficult.

Little to excite voters

Even in this Budget there is little to excite voters. Indeed, the Government has already faced political flak for announcing it will increase class sizes to help pay for more spending on teacher training.

And while spending on health has risen, it does not match earlier years.

Bill English calls this Budget a sensible Budget for the times. But Labour's finance spokesperson David Parker describes it as a drab Budget.

What will voters think? Sensible or drab?

Neither, though, is likely to grab their attention and Labour and other Opposition parties will focus their criticism on what they say is the Government's failure to deal with imbalances within the economy.

As David Parker points out, New Zealand's current account deficit - the difference between what it earns and spends overseas - is forecast to increase and so, too, is the level of national debt.

But in his Budget speech Mr English says the Government is building a more productive and competitive economy.

"New Zealanders have shown great resilience through challenging times. Budget 2012 supports their aspirations for a brighter future," he says.

His three previous Budgets promised much the same.

And so far that brighter future National promises is yet to arrive as the economy continues to be buffeted by international economic uncertainty and the consequences of the Canterbury earthquakes.

The question is, will Bill English's fourth Budget make any difference?