New Zealand

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  • Service: Advisory, Tax, Business Advisory
  • Type: Business and industry issue
  • Date: 24/05/2012

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Ross Buckley

 

Ross Buckley

Executive Chairman

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Budget 2012 - On the level 

Budget- growth

 

Today’s Budget confirms the balancing of the Government’s books as the target for 2015.  This is despite a moderation of growth forecasts since 2011 and Eurozone head winds.


New Zealand Government Budgets increasingly confirm well publicised plans.  The interest is in the overall picture and to a limited extent on any new announcements.

 

The key themes this year:

 

Much depends on Christchurch

 

The bulk of New Zealand’s growth is generated by the Christchurch rebuild.  Although the timing is becoming clearer, the detail remains unclear and the scale of the rebuild remains uncertain.  More clarity will arise from the blueprint for the central city when announced shortly.  For the rest of the economy, growth is expected to be uneven so that it provides little revenue upside.
 

A bias towards action

 

Government wants to achieve the best returns possible for its spend.  The Government has confirmed plans to target expenditure to boost business investment or to reduce on-going Government obligations.  This means that there is little new spending – a zero budget.  The Government continues to spend in core Government activities of health, social welfare and education and on encouraging business research and innovation. 

 

Publicly articulating targets for public sector provided outcomes is a welcome discipline.  Reducing prisoner reoffending by 25% and improvement in early childhood education participation rates to 98% have been added.  Reporting on these and other goals going forward will allow scrutiny of the success of the initiatives.  It will be important that the public sector delivers the holistic outcomes envisaged and not merely achieve the statistical benchmarks.

 

From a purely business perspective, there is limited but significant spending to try to correct New Zealand’s underspend on business research and development.  The Government’s infrastructure spending from previous Budgets also remain.  These can be expected to produce some on-going fiscal stimulus.

 

Rules to ensure greater transparency for KiwiSaver funds’ financial performance are welcome, yet there remains a feeling that New Zealanders’ collective financial literacy must also improve to yield best results. The “auto enrolment” of non-members proposed for 2014/15 has been deferred – essentially it seems because it would have compromised the return to surplus.

 

Fiscal position is finely balanced

 

The fiscal position is an increasingly difficult balancing act.  Credit agencies, slowing growth in Asia, Eurozone headwinds, Australia’s slowing and two speed economy are identified risks to be balanced.  So too for Government is an electorate which is starting to question whether fiscal responsibility means that New Zealand is following the Eurozone’s austerity . 

 

The Budget anticipates good economic growth in the short term (2.9% for 2012/13) and holding at or above that level for the remaining forecast period. 

 

That sees the Government deliver on its anticipated return to surplus in 2014/15 – but only just, as the surplus is projected at a mere $197 million compared with the $1.3 billion forecast a year ago in Budget 2011.

 

What does this mean for business?

 

The Government is predicting a better year for some especially for those who are in industries and sectors involved with the Christchurch rebuild.  
 

For others, it will continue to be a challenge due to domestic and global economy.

 

The Government’s response is to confirm its course.  It finds additional revenue in minor, targeted tax changes – reflecting the fact that the tax system will not deliver more without a real revamp, or major spending on Inland Revenue’s IT systems.  It has earmarked some of the funds from mixed ownership – now reframed “partial share sales” – of SOEs to be invested in schools, hospitals and other infrastructure.

 

At the same time, there is room for the Government to respond to those uncertainties by providing further stimulus if necessary.

 

That is welcome in an uncertain global environment.

 
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