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Tight Budget in 2011, but not the right time

Tight Budget in 2011, but not the right time

The 2011 Budget will be even tighter on new spending than this year, risking further stagnation and high unemployment, said the CTU in response to the Budget Policy Statement released by the Government today.

The half year Economic and Fiscal Update released at the same time shows a significantly increased deficit forecast – but the difference is accounted for by the one-off costs of the Canterbury earthquake and providing for leaky homes (Weathertight homes scheme).

“The tighter spending constraints in the 2011 Budget – if they can be believed – risk the current stagnation and high unemployment continuing,” said Bill Rosenberg, NZCTU Economist and Policy Director. “It is built on over-optimistic forecasts which have unemployment below 5 percent by March 2013, whereas the Reserve Bank and NZIER consensus forecasts predict it will still be above 5 percent by that time.”

Rather than locking ourselves into tighter spending caps, there continues to be a strong need for the Government to stimulate the economy and help those who lose their jobs, said Rosenberg.

“If the Government is so worried about the deficit it should reverse its tax cuts for those on higher incomes.”

In Budget 2011, the Operating Allowance – the sum set aside for new spending initiatives – will be set at $1.12 billion, just 2 percent more than Budget 2010. But it will have two new items crammed into it. One is “demand and cost pressures associated with the education sector”. The other is a provision for “higher than expected increases in expenses” outside the allowance, like Kiwisaver expenses.

For the education sector, it means it will not be able to spend outside budget on increased early childhood enrolments for example, and will have to budget for any pay increases for staff.

The Government is unable to estimate the cost of these additions, but they could mean hundreds of millions of dollars less are available for new spending in an already tight budget.

“Government policies have failed to take New Zealand strongly out of the recession. Today we were told these policies will continue.”


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