Posted By

Tags

Budget sets glide path to prosperity

For the Government, Budget 2014 is about consolidating the gains from its policies to date and making the most of the opportunities from a growing economy.

We call this setting a glide path to prosperity.

The twin focuses of this Budget are early interventions in the health, education and justice areas to achieve significant long term economic and social outcomes and creating and sustaining a favourable business environment, with additional investment in infrastructure, R&D and skills, and through prudent debt and fiscal management.

Tough measures

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.

The Government has also had to deal with a few unexpected challenges such as the Canterbury earthquakes and the rebuild. It has navigated these challenges well.

The Government will be satisfied with its approach to date and Budget 2014 has shown that it is continuing with its previous direction. It shows that growth, spending, tax and debt are all on the right track with a return to surplus in 2014-2015 achieved.

There is additional funding in the Budget for core areas like health and education and infrastructure, but this is within the Government’s restraints on new spending each year.

No election stunt

This is a Budget for the times, not election year largess.

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?

“Steady as she goes”, “Staying the course” and even “Boring” have been the terms 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.

It is 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.

Economic management

The Government will be satisfied with its approach to date and is continuing with its previous prescription.

Budget 2014 is themed ‘Managing a Growing Economy.’ This is about consolidating the gains from the Government’s ‘Building Growth Agenda’ aimed at a more competitive economy and its results- based framework for public sector spending.

Spend to save

There are two key frameworks in the budget.

The first around social assistance reflects the Government’s growing conviction that what is good for the society is also good for the Government’s books.

Accordingly, we see an increased focus on: interventions to improve health; investment in children early in their lives; reduction of crime; and building skills. These are seen to result in significant long-term paybacks in terms of both social and economic outcomes.

In particular, the Government sees these ‘spend to save’ initiatives underpinning its ability to keep future social spending tightly constrained.

The Government sees its role as creating and sustaining an environment that enables businesses to prosper and jobs to grow.

Prudent approach

Hence, we see an ongoing focus on building the right infrastructure for the country, and on net Government debt reduction and management to 20% of GDP by 2020.

There is a focus on R&D, and on skills and education for business. The stability of this approach and fiscal restraint should assist with keeping interest rates down.

Growth, spending, tax and debt are on the right track. There is additional funding in the Budget for core areas, like health, education and infrastructure. The much-heralded return to surplus from 2014-2015 will see the Government increasing its fiscal cap on new spending from $1 billion average annual allowance in Budget 2014 to $1.5 billion per annum from 2015. There is a hint of modest tax reductions ahead.

This is a prudent and conservative approach, not a Budget of election year largesse.

Progress for all

KPMG is passionate about fuelling New Zealand’s prosperity. This is not just about economic growth, or the growth of our clients, but about all New Zealanders being able to participate in New Zealand’s prosperity.

We have no doubt that both National and Labour are committed to furthering New Zealand’s prosperity.

The decision for New Zealanders at this year’s election, and possibly the next, would be based on their vision of New Zealand’s prosperity.

This is important because across a range of diverse issues, from tax policy to funding New Zealand’s infrastructure needs and welfare, social and housing policies, the major political parties have increasingly divergent views on the best way forward.

We expect the contrasts to become more marked as the election campaign kicks off.

Ross Buckley is Executive Chairman of KPMG New Zealand, Sponsor of the ‘Business Excellence in ICT’ category of the Indian Newslink Indian Business Awards 2014.


Share this story

Related Stories

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Indian Newslink

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement

Previous slide
Next slide

Advertisement