Budget seizes on economic opportunity

In his speech to Parliament in 1953, the late Sir Winston Churchill who was defending his government’s budget, said, “In finance, everything that is agreeable is unsound and everything that is sound is disagreeable.”

No Finance Minister before or after that statement was made has ever been so popular as to be left unscathed during a budget session.

Opposition attacks

Our Finance Minister Steven Joyce will undoubtedly get his Finance Bill for fiscal year 2017-2018 passed in Parliament in less than a fortnight, but he would not get it without some unsavoury remarks from not only the opposition benches but also National Party supporters.

Labour Leader Andrew Little has called it, ‘One-Dollar Budget,’ New Zealand First Party Leader Winston Peters described it as ‘woeful,’ and Greens Co-Leader James Shaw accused Mr Joyce of giving ‘biggest break to wealthiest New Zealanders.’

Even the ACT Party, a participant in the National-led Government was critical of the Budget and Mr Joyce.

“It is a perfect example of politicians creating problems through bad policy, assuming the role of hero to fix things, and then making worse,” ACT Party Leader and Member of Parliament David Seymour said and added, “(Mr Joyce is) throwing away a billion dollars every year at the housing market.”

Growth potential

New Zealand’s economic growth is tipped to peak in 2019, boosted by ongoing population growth, investment, and a new family incomes package announced in Finance Minister Steven Joyce’s maiden budget. Growth, however, then tapers off as net migration subsides, construction growth eases and rising interest rates begin to bite.

While the economy expanded less than expected this year as exports, residential investment and business investment grew at a slower pace than anticipated, growth is forecast to accelerate to a peak of 3.8% in 2019 as investment growth gains momentum and private consumption is supported by fiscal stimulus associated with the family incomes package.

Family Incomes Package

The $2 billion Family Incomes Package, which will become effective on April 1, 2018, is expected to benefit about 1.3 million families in New Zealand by, on average, $26 per week. Treasury expects households to spend the majority of the boost to their incomes.

Firm economic growth over the past year means that the Government’s books are in good shape. The Treasury is now forecasting an operating surplus of $1.6 billion in the current fiscal year – stronger than the modest $0.5 billion surplus expected in the Half-Year Economic and Fiscal Update (HYEFU) last December.

Over the next few years the surplus is expected to continue growing, but at a more gradual pace than previously assumed. The Government is now forecasting an operating surplus of $7.2 billion in 2021, down from the $8.5 billion that was forecast in the HYEFU.

The losers

Small businesses and the regions are mentioned in passing (particularly for tourism), but pale into insignificance against the investment in Auckland’s powerhouse.

But the underlying themes show a high degree of continuity, with the Government investing in recovering from the Kaikoura earthquake and replenishing EQC’s funding model to prepare for any future shocks.

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