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Budget 2015: Sticks to tried and tested formula

Budget 2015: Sticks to tried and tested formula

“Budget 2015 delivers few surprises, and sticks to the approach we have come to expect from the Minister of Finance,” says PwC Chief Executive Office Bruce Hassall.

Solid economy
The economy is forecast to grow at around 2.8% per annum over the next four years, and to be steadier over this period than previously feared. Inflation is low, employment growing, unemployment coming down and apart from Auckland housing and construction, capacity pressures in the economy are not threatening.

Government expenditure - making a virtue of predictability
The themes from previous budgets come through again: supporting people into work, greater welfare support for those most in need, some R&D and infrastructure spending, and the normal increases to meet pressures in core services in health, education and law & order.

“The deficit is larger than had been signalled, and the surplus next year is back to rounding error levels. So with little financial room to manoeuvre, the sums involved are not large. But the underlying approach of focussing on long-term performance and tackling the more challenging parts of society continues.

The $500m in ACC cuts come in over the next two years, but travellers will now pay a charge on entry and exit from the country.

Auckland housing
The Auckland housing market remains the most toxic risk to the economy. Measures to damp down demand are welcome (the Reserve Bank’s LVR moves and strengthening the tax regime around property profits) and are joined by more initiatives on the supply side, especially bringing more Crown land into the market for development. But the latter operates on a timescale of years, and underlying population growth continues in the meantime.

Children in hardship
The centre-piece is a linked package of measures increasing benefits and Working for Families tax credits for families on the lowest incomes, supported by increased subsidies for childcare and extension of early childhood education.

A creditable record
All-in-all, Budget 15 continues Bill English’s creditable record of bringing the country out of the depths of the GFC, without the pain of austerity and public spending cuts, and while still driving improved performance in the public sector. He didn’t blink at the massive hit to public finances from the Canterbury earthquakes, so he’s hardly likely to do so over missing the surplus this year.

What’s next?
“The cupboard is looking pretty bare for next year (“$1 billion allowances are the new normal”), so we can expect more of the same in Budget 2016. But an allowance of $2.5 billion has been left for Budget 2017 (pre-election), so any hope for material moves on tax or expenditure will have to wait until then,” concludes Mr Hassall.


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