Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Deloitte: Budget 2011 - Are we keeping pace?

Deloitte: Budget 2011 - Are we keeping pace?

Budget 2011
Are we keeping pace?

Deloitte Budget commentary — 19 May 2011
Finance Minister Bill English has delivered Budget 2011 at a time when the New Zealand economy is struggling with a sluggish recovery, the impact of two Christchurch earthquakes, and fallout from finance company failures. Last year’s Budget implemented a range of radical tax reforms to realign the economy away from consumption, and towards savings and investment. What was needed this year was a clearer articulation of the Government’s strategic destination for the country.

Deloitte’s team of experts has analysed the content of Budget 2011 and the likely impact of the major announcements on New Zealand business and the wider economy. Specifically, we have looked in-depth at the nation’s bank account, what this Budget means for taxpayers, changes to KiwiSaver, and plans for partial asset sales.


For full commentary and analysis of the Budget's key elements, download here:

Budget 2011: Deloitte's perspective

Scoop Copy of Deloitte Budget Commentary


Introduction Steady as she goes, for now

By Murray Jack
Deloitte Chief executive

What a difference a year makes! Last year’s budget was full of optimism with the most significant tax changes in 25 years targeted to provide a platform for productivity and economic growth. A year and two Christchurch earthquakes later and the Government’s accounts are less rosy in the near term. The earthquakes and a slower recovery coming out of the GFC enhanced long recession have exposed prior assumptions.

Last year’s Budget Overview commented....“and this [2010 Budget] strategy focuses on raising New Zealand’s productivity and growth rate. This is the only way the Government can deal with the “dead rats” it swallowed in the lead up to its election – interest-free student loans, working for families, and not raising the entitlement age for superannuation. Let’s be clear – if the economy does not reach sustainable growth levels there will be no choice but to peel back entitlements if the country is to remain within prudent levels of debt.” Well the economy hasn’t grown and won’t grow much for the rest of this year. Beyond that there are hopes for a rapid growth by past standards – but that is not certain.

So in 2011 we see the first tentative steps to tackling entitlements.

• Working for Families faces a trim for the higher earners with fewer kids.

• Student Loans are no longer as “interest-free” for some and others face curbs.

• KiwiSaver subsidies are trimmed and employers and workers pick up the slack with minimum contributions lifted to 3%.

Of these most rhetoric will flow around KiwiSaver. The problem, however, is that a scheme that relies for its success on the Government contributing a dollar for every dollar saved makes no sense. The quirkiness of this is even more exposed when 45% of the funds in KiwiSaver are invested off-shore. We can fiddle with KiwiSaver as much as we like but as long as we have a relatively generous universal pension, health care free at the point of delivery, and a largely free education system backed at the tertiary level by interest-free loans we will have to continue to pay people to save. More serious reform is needed.

But the entitlement changes are hardly frontal assaults on middle-class welfare. Bill English’s austerity budget cannot be remotely compared with Ruth Richardson’s mother of all budgets. This is because most of the expenditure restraint is forecast to come from public sector administration efficiencies and “reprioritisation”. This is appropriate. The noughties saw a relentless rise in the number of public servants and hence cost with hard to find evidence of productivity gains. To date the private sector has borne by far the greatest burden of adjustment during the long recession, both in terms of employment and wages. The predicted restraint in the Budget is sensible.

However, this comes with its risks. The risks don’t relate to cessation of services but to the capabilities within the public sector to drive out costs and reprioritise expenditure and the speed with which they can do so. The lower spending path of the last two years has helped condition attitudes but this Budget sees a quantum shift in scale and urgency of action. As a consequence of this strategy there remains a reliance on rebounding economic growth to pull the country out of deficit (forecast to be in 2014/15 - just). The earthquakes complicate prediction here.

Some commentators believe Treasury has significantly underestimated growth and no doubt a positive surprise would be a boost. But there are risks and many of these are on the downside – the global economy is not yet firing on all cylinders, Australia’s two-speed economy is becoming more apparent, and business investment in New Zealand is still anaemic and will remain so until consumer demand recovers.

More positively the Government has mainly held its nerve on infrastructure spending. While there are many views on the suitability and priorities of some of the spending there is no argument that overdue investments must be made and that productivity gains for business will follow. A commitment to partial asset sales is also encouraging. Forget the ideological battles here. Sales are a pragmatic way of improving the Government’s balance sheet, driving better performance, and relieving the taxpayer of the risks of business ownership. They are also critical to re-energising our capital markets and providing an investment destination for the growing private savings pool. Getting them away in the timeframe envisaged is not a simple matter. However, the state of the balance sheet and unwillingness to tackle entitlements in more a material way has meant that the Budget has not materially addressed two key areas – savings and investment and welfare reform. Working Groups have reported out on both these and both have received little attention.

These remain a work in progress and something to perhaps look forward to in 2012. A wish list for business here could include lower taxes on investment income, reintroduction of youth rates and improved incentives to train and work. Our youth unemployment rates are a disgrace. It was baffling to see that we need to spend (another) $55m in schemes to get young people into work while we merrily abolished youth rates and raised the minimum wage. The latter two are beguiling arguments (at least to those who have jobs) that have adverse consequences for our youth and yet we continue to support them.

Two these two arguably research, development and innovation could be added. There is little here that might help arrest the decline in New Zealand’s competitiveness most recently observed by IMD’s World Competitiveness Centre. We are now 21st on a ladder where we used to be in the top three.

Overall Bill English has produced a steady-as-she-goes budget. It is sufficiently austere to deal with the fiscal position we are in and will keep the rating agencies at bay - so long as economic growth returns. We will never know if this budget would have been more reforming in nature. That debate now shifts to the up-coming election.


For full commentary and analysis of the Budget's key elements, download here:

Budget 2011: Deloitte's perspective

Scoop Copy of Deloitte Budget Commentary


© Scoop Media

Business Headlines | Sci-Tech Headlines


Voluntary Administration: Renaissance Brewing Up For Sale

Renaissance Brewing, the first local company to raise capital through equity crowdfunding, is up for sale after cash flow woes and product management issues led to the appointment of voluntary administrators. More>>


Approval: Northern Corridor Decision Released

The approval gives the green light to construction of the last link of Auckland’s Western Ring Route, providing an alternative route from South Auckland to the North Shore. More>>


Media Mega Merger: Full Steam Ahead For Appeal

New Zealand's two largest news publishers have confirmed they are committed to pursuing their appeal against the Commerce Commission's rejection of the proposal to merge their operations. More>>

Crown Accounts: $4.1 Billion Surplus

The New Zealand Government has achieved its third fiscal surplus in a row with the Crown accounts for the year ended 30 June 2017 showing an OBEGAL surplus of $4.1 billion, $2.2 billion stronger than last year, Finance Minister Steven Joyce says. More>>


Mycoplasma Bovis: One New Property Tests Positive

The newly identified property... was already under a Restricted Place notice under the Biosecurity Act. More>>

Accounting Scandal: Suspension Of Fuji Xerox From All-Of-Government Contract

General Manager of New Zealand Government Procurement John Ivil says, “FXNZ has been formally suspended from the Print Technology and Associated Services (PTAS) contract and terminated from the Office Supplies contract.” More>>