16 May 2013
Budget reflects modest optimism
Slow and steady may yet win the race as New Zealand is set to return to surplus as promised in 2015
As a consequence of the improving economic conditions and having gone further down the economic journey, Budget 2013 reflects a degree of optimism compared to past Budgets delivered by Finance Minister Bill English, says Deloitte CEO Thomas Pippos.
“New Zealand is in a fundamentally different place now to where it was two years ago when it announced a 2011 budget deficit of $18.3 billion” says Mr Pippos.
With only $3.6 billion of new operating expenditure over the next five years, however, the speed and direction of travel continues to be dictated largely by fiscal constraint, albeit now peppered with economic optimism – particularly when viewed through the Australian Budget lens.
“This ‘slow and steady’ approach to economic management is starting to pay real dividends through a combination of restraint and reprioritisation on the expenditure side and a natural increase in revenues” says Mr Pippos.
“This is about a journey where there are no easy solutions, short cuts or even guarantees. A magic wand evades all Ministers of Finance.”
Compared to the Australian Budget announced two days ago, today’s Budget announcement sees New Zealand outperform Australia. They are staring down the barrel of respectively $18b and $11b forecast deficits, against a materially larger economy of course, until they move into black in 2017, some 2 years later than us. Their much-publicised forecast return to surplus in 2012 has evaporated on reduced tax revenues and increasing expenditure to fund social policies.
“For a decade now Australian Treasurers have been pulling rabbits out of a hat – delivering better than expected Budgets despite material tax cuts, a flurry of family benefits, and a bevy of baby bonuses. That rabbit now seems dead.”
New Zealand meanwhile is enjoying increasing tax revenues across the board while continuing to exercise restraint and reprioritisation on the expenditure side, setting up the potential for a promised return to surplus in 2015 – albeit anticipated to be razor thin.
“In many ways Budget 2013 is only a placeholder before the big event. In 2014, barring any significant externalities, the Government will forecast a return to surplus in 2015, potentially signal a sharing of some of the benefits anticipated to flow thereafter to make them tangible, and present its economic case for a third term - a case that was done no harm at all today,” concludes Mr Pippos.