Last year’s Budget highlighted the Government’s focus on social areas, but otherwise demonstrated its non-interventionist inclinations. So how does Budget 2014 stack up, and what does it mean for New Zealand’s prosperity?
The story so far
“Steady as she goes”, “staying the course” and even “boring” have been used interchangeably to describe the last few Budgets and this Government’s general approach to fiscal and economic management over the last two terms. This is not to trivialise the efforts to date.
Many of the tough decisions, including reining in Government spending and some bold tax reform measures, were taken at the start of its first term. This has allowed the pain from repositioning New Zealand’s economic and fiscal settings to be spread over time rather than creating a massive shock to the system. Interestingly, Australia is now facing similar fiscal pressures, and calls to action, as its mining boom tapers off – see KPMG Australia’s commentary on the 2014 Australian Federal Budget [PDF: 753KB].
The Government has also had to deal with unforeseen challenges, notably the 2010-11 Canterbury earthquakes. The rebuild is generating an economic boost, which along with the continued economic growth in Asia particularly the resilience of the Chinese economy, now New Zealand’s biggest trading partner, has New Zealand outperforming most of our traditional trading partners. Budget 2014 forecasts this growth to continue.
It’s not all about the silver lining however. External and internal risks could still throw the New Zealand economic story of its track. Externally, a still fragile global economy and an Australian economy coming off the boil will be of concern. Internally, New Zealand households’ still high levels of indebtedness, and the impact on interest and exchange rates has been a persistent worry. Keeping a lid on both will be hot button topics in the upcoming election campaign.