26 May 2016

Budget 2016 continues the pattern of fiscal prudence while leaving long-term problems largely unaddressed

Deloitte CEO Thomas Pippos says that Budget 2016 offers the continuation of the pattern of growing surplus’s in the mid-term (up to $5 billion by 2019), a current plan to reduce debt, the reality of relatively moderate headline tax rates that may be eased even further – particularly over the next term.

“Quite a different position to what many of our trading partners find themselves in, most notably Australia,” says Mr Pippos.

“However, largely due to an ageing population, our long-term outlook is far from rosy. If the current pattern of revenue and spending continues, net debt potentially appears to increase from the current 25% of GDP to over 200% over the next four decades, while noting that the nearer term outlook canvassed in Budget 2016 has net debt projected to fall to 19.3% in 2021,” he adds.

“While Budget 2016 may continue to starve others of the political oxygen necessary to thrive, it unfortunately leaves many of our long-term challenges still largely unaddressed. The road to 2020 looks quite different to that going out another 40 years.”

Deloitte’s recent State of the State (www.deloitte.com/nz/stateofthestate) report focuses on the importance of looking at the quality, rather than quantity, of government expenditure, particularly as it impacts on the long-term. It takes a closer look at social investment, which is a preventative approach rather than reacting to problems after they’ve occurred.

Mr Pippos says that while an additional $652 million has been allocated to social investment in Budget 2016, it is still a long way from being the mainstream way of working for the wider public sector.

“In part this is because such a long-term view doesn’t sit easily with a political cycle or environment that places a huge emphasis on the here and now,” concludes Mr Pippos.

Deloitte’s team of experts look at today’s budget announcement, particularly how it relates to the long-term success of New Zealand. For our full Budget 2016 commentary and analysis go towww.deloitte.com/nz/2016budget.

ENDS

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