21 May 2015

Will Budget quell some disquiet?

10:22 am on 21 May 2015

Finance Minister Bill English will deliver his seventh Budget this afternoon, with measures to combat skyrocketing house prices and child poverty likely to feature.

New Zealand money.

Photo: RNZ / Alexander Robertson

But one thing is for sure, the Government will not be posting a forecast surplus.

Plummeting dairy prices and persistently low inflation have stymied the Government's plan to post its first surplus since being elected in 2008.

And having already committed about $300 million in pre-Budget announcements, Mr English only has about $700 million left to play with, within the $1 billion new spending cap.

In terms of child poverty, both the Prime Minister and the Social Development Minister have talked it up as a Budget priority.

However, the Government has already drawn a clear line in the sand in terms of what it won't do; increase benefit rates beyond annual increases in the Consumer Price Index, or extend Working for Families tax credits to beneficiary families.

Mr English has been laying the groundwork for the areas the Government will focus on, through what he described as a "social investment" approach.

Fiscal Strategy Report

Fiscal Strategy Report. Photo: RNZ / Alexander Robertson

In his pre-Budget speech in May, he identified a hardcore group of households the Government believed could be specifically targetted.

"Take a child under five who is known to Children, Youth and Family Services, [typically] has at least one person in their household on a benefit and either of their parents has had contact with Corrections.

"Statistics can pretty accurately forecast that by the age of 35, that child is around five times more likely to have been on a benefit long term and seven times more likely to have been in prison by age 21."

Mr English is talking about early intervention for these groups, rather than the wider cohort of New Zealanders living in poverty, but is warning the Government can't afford "large-scale, expensive programmes."

The ever-cautious Mr English continues to play down expectations.

At the traditional viewing of the Budget off the printing press on Tuesday, he told reporters the Budget is not where the big changes occur, rather it has been a process of reorganising spending throughout the past 18 months.

'There'll be some more money in the Budget to feed the process, but there won't be new initiatives because we're grinding through the hard bit of making the changes in the way the Government's organised."

After the Budget there will inevitably be debate about whether the Government has lived up to the expectations it itself raised about tackling child poverty.

Housing is the other issue dominating the political agenda.

In a pre-emptive strike, the Prime Minister recently announced extra money for Inland Revenue to track down and enforce tax owed from capital gain on residential property, along with new requirements on overseas buyers.

Hoping to quell some public disquiet about out-of-control Auckland house prices, John Key also announced a new "bright line" test, that is houses bought and sold within two years, excluding the family home, will be subject to a capital gains tax.

The Government has been fighting the housing fire on several fronts over the last year or so: in the social housing portfolio, fast tracking consents, Kiwisaver sweeteners for first home buyers, and cheaper building supplies and products.

Look out for further measures in the Budget to boost housing supply, due to include making more vacant Crown land in Auckland available for housing development.

But, as with child poverty, the Government will have a hard sell to convince those at the sharp end of both issues it's done enough to make a significant difference.

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