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

 


COMMENT – The worm turns in Budget 2014

COMMENT – The worm turns in Budget 2014

Comment by Pattrick Smellie

May 15 (BusinessDesk) – Six years ago, just before the global financial crisis but as a local recession was taking hold, then Finance Minister Michael Cullen delivered substantial tax cuts in the last Budget of the Labour-led government’s nine year reign.

With a general election looming, it looked like the kind of Budget the Finance Minister in a National-led government might have liked to deliver.

In 2014, Finance Minister Bill English has delivered a Budget that looks like a restrained version of the kind of Budget a Labour Finance Minister would like to deliver.

Forget the total value of the initiatives announced today. The sums involved are not huge, because the government has kept itself on short rations for new spending: no more than $1 billion in the year to June 30 2015. That will rise to $1.5 billion the following year and after that, government spending will be allowed to rise by 2 percent a year.

There’s no concrete talk yet of any of those funds being used for tax cuts. There’s simply no need to do so at this stage, especially as the political advantage to be gained from tax cuts has become less clear-cut amid rising concern about income inequality.

As a result, government spending is projected to fall to just below 30 percent of Gross Domestic Product, from a high point of 35.1 percent in 2011. At the same time, tax revenue continues to rise from a forecast 26.8 percent of GDP this year to 28.5 percent by the 2017/18 fiscal year.

Most of all, and in stark contrast to this week’s Australian Budget slashfest, English’s sixth Budget of the John Key administration is constructed to be full of good news. Every year, journalists receive a huge sheaf of press statements, organised in order of their propaganda value. In there somewhere, usually, is some bad news for someone.

Apart from duty cuts on building products to chivvy along dominant local producers such as Fletcher Building to sharpen their pricing, there is no bad news in the Budget, unless you count the myriad of areas where the government could otherwise have chosen to spend.

But cautious generosity is part of the story the government is seeking to tell. English’s message is that the government has managed to guide the country through global financial and local natural disasters in the last six years, and the economy is in tidy shape at the end of that period.

Meanwhile, targeted measures such as free doctors’ visits and prescriptions for under-13’s, $30 million more for social housing initiatives, and longer paid parental leave are clearly intended to spike Labour’s guns.

Meanwhile, economic growth is forecast to peak at a robust 4 percent in the year to June 2014, unemployment is forecast to fall to 4.4 percent by 2018 with very high rates of labour force participation by international standards, inflation remains under control, and government debt falls below 20 percent by the end of the decade.

The big bogey, the current account deficit, stays worryingly high at above 6 percent of GDP by late in the decade, but it’s projected to be considerably lower than earlier forecasts.

By the standards of other developed world economies, and particularly by comparison with the black mood emanating from Australia at present, this Budget shows the New Zealand economy in indisputably tidy shape.

Opposition parties looking for something concrete to attack are faced with an unusually difficult task as the Key administration comes into the home straight for an election to be held not only near the top of a much-needed economic recovery, but with a credible story to tell about its management of the economy during a period of historically large challenges.

The dark spots are elements such as the pressure on export receipts, which are negative on a net basis throughout the Budget forecast period, in part because of the ongoing strength of the exchange rate. Those aren’t the conditions for achieving the government’s arbitrary target of getting exports to 40 percent of GDP.

However, for the moment, the good news is overshadowing the negatives, as shown by the extraordinary migration figures New Zealand is currently experiencing.

A net immigration inflow of some 38,100 this year is very high by historic standards, mainly reflecting more New Zealanders deciding to stay here instead heading to Australia or further afield in search of greener pastures.

It’s hard to argue with the way that people vote with their feet.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Interest Rates: RBNZ Hikes OCR To 3.5%, ‘Period Of Assessment’ Now Needed

Reserve Bank governor Graeme Wheeler raised the official cash rate as expected, while signalling a pause in rate hikes to assess the impact of moves so far this year. The kiwi dollar sank after Wheeler said its strength was “unjustified” and that the currency could have “a significant fall.” More>>

ALSO:

Fonterra: Canpac Site 'Resize' To Focus More On Paediatrics

Fonterra is looking at realigning its packing operations at Canpac, in the Waikato, to focus more on paediatric nutritionals... The proposed changes could mean around 110 roles may not be required at the site which currently employs 330. More>>

ALSO:

Scoop Business: Postie Plus Brand Gets 2nd Chance With Well-Funded Pepkor

The Postie Plus brand is getting a new lease of life after South Africa’s Pepkor bought the failed retailer’s assets out of administration and said it will use its purchasing power to reduce costs of stock and fatten margins. More>>

ALSO:

Warming: Warming Signs From State Of Climate Report

Climate data from air, land, sea and ice in 2013 'reflect trends of a warming planet' -- says the latest State of the Climate report, launched by U.S. and New Zealand scientists. More>>

ALSO:

Scoop Business: Embrace Falling Home Affordability, Says NZIER

Despair over the inability to afford a house is misplaced and should be embraced as an opportunity to invest in more wealth-creating activity, says the principal economist at the New Zealand Institute of Economic Research, Shamubeel Eaqub. More>>

Productivity Commission: NZ Regulation Not Keeping Pace

New Zealand regulators often have to work with out-of-date legislation, quality checks are under strain, and regulatory workers need better training and development. More>>

ALSO:

Callaghan Innovation: Investment To Help Deepen Innovation Reporting

Callaghan Innovation, the government’s high tech HQ for Kiwi business, is to help deepen New Zealand media coverage of the commercialisation of innovation through an arms-length partnership with independent business news service BusinessDesk. More>>

ALSO:

Tax Credits, Grants: Greens $1Bn R&D Plan

In the Party’s headline economic announcement, the Greens have launched their plan to build a smarter, more innovative economy which has as its centrepiece an additional $1 billion of government investment in research and development (R&D) above current spend, including tax breaks for business. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news