By Bernard Hickey
The Government announced in Budget 2013 it is still on track to post a surplus in 2014/15, but the surplus is smaller than expected and came after a slight increase in net new spending in the next two years and a two year delay in the resumption of contributions to the New Zealand Superannuation fund.
There were few big new spending announcements not already previewed by the government, but Budget 2013 did include plans for ACC levy reductions of NZ$300 million in 2014/15. These levy reductions will escalate to NZ$1 billion by 2015/16.
A surplus of NZ$75 million is forecast for 2014/15, allowing the government to keep its promise of a surplus by then. This follows a deficit of NZ$2 billion in the 2013/14 year and NZ$6.3 billion in the yet to be completed 2012/13 year. Economists had forecast a 2014/15 surplus closer to NZ$1 bln.
The government plans NZ$900 million of net new spending in the 2013/14 year, up from NZ$800 million indicated before the budget and follows two years of 'zero' budgets of no net new spending. This allowance for 'discretionary spending increases to NZ$1 billion in 2014/15 and operating spending is scheduled to increase by 2% a year after that.
The government also stuck to its forecast of reducing net debt to under 20% of GDP by 2020 from almost 30% of GDP in 2014/15, but it has delayed plans to restart contributions to the NZ Super Fund by 2 years to 2020/21 to do that.
Elsewhere, the government announced it had signed a Memorandum of Understanding with the Reserve Bank to allow it to require banks to hold an extra buffer of capital during upswings in the economic cycle, to require banks to hold an 'overlay' of capital for lending to certain sectors, to require them to use more stable sources of funding, and to restrict high loan to value ratio lending in housing.
Finance Minister Bill English later said the decision about imposing limits on high LVR lending, which would hit first home buyers hardest, was with the Reserve Bank.
English detailed plans for legislation for housing accords with councils that would accelerate building consents in high growth areas. He later told a news conference the accord would allow, under certain circumstances, the central government to over-ride councils and directly issue consents centrally.
"This legislation, which will apply for three years, is an immediate response to housing pressures in areas facing severe affordability problems," English said in his budget speech in Parliament.
The Budget followed the announcement of an accord with the Auckland Council last week that aimed to build 39,000 extra houses over the next three years, which would be nearly triple the amounts built by the private sector over the last 3 years.
The government also confirmed expectations that it would sell up to 49% of Meridian Energy in the second half of 2013.
Other key details:
- Treasury forecast economic growth in the year to March 2014 of 2.4%, rising to 3% in 2015, before falling to 2.6% in 2016 and 2.2% in 2017.
- Treasury forecast the current account deficit rising to 6.5% by 2017 from 4.8% in the current year, although it noted it would only be around 5% without the costs of the Christchurch rebuild.
- Future investment fund to spend NZ$1.5 bln in 2013 budget, mostly on Christchurch hospitals and Christchurch rebuild. Budget 2013 included an extra NZ$2 bln in spending on the Christchurch rebuild overall. The total government contribution to the rebuild was increased by NZ$2.1 billion to NZ$15.2 bln. The total overall cost of the rebuild was now NZ$40 bln.
- NZ$100 million for Healthy Homes over 3 years
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A surplus of NZ$75 million is forecast for 2014/15, allowing the government to keep its promise of a surplus by then.
Economists had forecast a 2014/15 surplus closer to NZ$1 bln.
Treasury forecast the current account deficit rising to 6.5% by 2017 from 4.8% in the current year, although it noted it would only be around 5% without the costs of the Christchurch rebuild.
Foreigners will be lending us significant sums of money - so while the government reduces collective debt, individuals will become more indebted - I thought the IMF wanted dwelling price levels to fall in the near term to contain inflation. Read article
The IMF report said although housing affordability figures were difficult to interpret, most showed a significant deterioration in New Zealand during the last two decades.
"The median house to income ratio rose from 3 in 2000 to about 5 in 2007, before declining to about 4½ in the last five years as incomes outpaced nominal house price growth
"This ratio is somewhat higher than that of several peer countries. Despite the recent decline, various measures still point to overvalued house prices [in NZ].
"Model based analysis suggests an overvaluation of about 25%
Well if they manage to dish out centrally issued consents with the same rigorous processes used for company formation and immigration........but it is clearly a fire lit under the well-cushioned posteriors (posteria? posteriae? posterieux?) of TLA ineptocrats.
Nick Did promise to 'smash the MUL's or RUB's or the squiggle-on-map-du-jour in more general terms.
Looks like he may not have been Bluffing. Tiwai'ing, well yes maybe. That 3-yr time-frame.....
There is some $200 million in not yet specified spending cuts they need to find in operations before they hit the $75 million surplus.
I am not sure they have modelled the costs of the drought on the economy properly, particularly the potential risk of similar conditions this summer (I would weight the risk as higher than Treasury I suspect).
I am glad they are doing something about housing. It is a politically face-saving hard thing to do to say something is not a problem and even if it was the government couldn't do anything, to shift to acknowledging it is a problem and acting. I think their projections about how much good the policies are going to are rather optimistic though. "Slowing the rate of increase" as Bill English put it, sounds a bit more likely than some of the numeric goals.
once you've sold them they're gone forever.
No no no no.....
It appears the full value of sold assets remain forever as part of net crown worth. Partial sales are noted as minority interests but are then added back.
The crown takes the cash but keeps the asset. I wonder if that was in the disclosure statement.
http://www.treasury.govt.nz/budget/forecasts/befu2013/befu13-whole.pdf
I think this sort of perception management/accounting is why Gabriel Makhlouf was bought in as Secretary to the Treasury.
Skills learned from past experience with Gordon Brown.
Someone knew what was going to be required, and Gabriel Makhlouf had the requisite skills and experience.
The previous government did 9 budget surpluses in a row, and got government debt down to the lowest in years, these guys run a deficit for 5 years in a row, run up government debt substantially, and finally only just make a surplus because they made billions from selling off an SOE, are National good financial managers? I think not.
The reason Labour could run a surplus was in the way they encouraged the property market and spending and hence tax receipts. Now I fully accept if the Nats had been in charge it would have been no better and arguably worse...
In terms of 5 years of deficits, considering we have been through a recession as bad as the Great Depression of the 1930s and yet are still not in a bad state, I'd suggest the steady as she goes appraoch of the Nats has been pretty sound. Could Labour have done any better? not iMHO I think they would have been far worse...
regards
Philty - tell me truly, do you actually believe yours is a statement that anyone with a brain wouldn't look at with distain, or is it that you think that there are enough people on here who don't read enough to know that something changed in the world about 6 years ago ?
...is it that you think that there are enough people on here who don't read enough to know that something changed in the world about 6 years ago ?
Yep, the collapse of the neoliberal finance model for crony capitalists - all political parties are adherents to varying degrees - it's what the voting public wants - nonetheless, the !% and their bond dealers cleaned them out.
Grant,
I actually do accept that a Labour led government, faced with the GFC, would likely have had some years of deficits. Nevertheless the Nats are disingenuous when they state, as they do frequently, that under Labour we would have had years of massive deficits. It is almost certain, as per the famous attributed Keynes quote:
"When the facts change, I change my mind. What do you do, sir?"
that Labour would have made considerable adaptations. As philthy points out, they actually had a pretty good history of balancing the books, and so appear to have that culture.
Other facts that have changed include the ways that many countries have organised their monetary priorities and policies as a result of the GFC. In this regard the Nats are stuck in a 80s/90s timewarp; and at least to that extent, they arguably have extended deficits beyond what was necessary, and at a considerable cost to the country's long term wealth.
By the by, there are some other amusing Keynes quotes here for those who have a spare half hour. Remember they were written 70-80 years ago, so need to be taken in that context.
I don't think you've got much of a brain grant, if they didn't have two assets sales in the year of this budget they wouldn't have come close to making a surplus they would have been billions in the red, again.
How many billions of assets did the previous government have to sell to make surpluses? try none.
under the previous govt household debt increased exponentially as homeowners spent their so called capital gain. The govt reaped the benefit of this in increased tax take. A govt for the good times. What if they had been more frugal - perhaps they would have handed over a country even better placed for the recession.
Mr Gabriel Makhlouf again:
...while the household saving rate remains steady:
http://www.treasury.govt.nz/budget/forecasts/befu2013/befu13-whole.pdf
Page 17, and it sounds positive doesn't it. But it gets better:
Household saving as a percentage of disposable income is expected to remain broadly in balance across the forecast period, as it has been for the past few years (Figure 1.6). This represents a shift in behaviour from much of the past two decades and its continuation will be an important factor influencing demand in the economy. Household saving is around 10 percentage points higher than its low a decade ago.
No numbers of course, but Figure 1.6 would suggest the steady savings rate is zero or slightly below.
Philly - go back and re-read your post that I commented on and let me spell it out real simply for you. All our sentence compared was Labour efforts during a boom period for the global economy with National's period that inherited a GFC and so far a 12bln earthquake - simple as that, understand. I made no point about how National handled it, I simply said you can't compare the two period. Are you suggesting they are the same .
Grant A - I usually don't agree with you, but (assuming you mean the global financial debacle and not the Labour Party!) I do there.
Never seen such a global collection of desperate measures. QE'ing, zero rates, austerity, debt-indulgence, urgent urging of house-builds, arguing for productivity gains, accusing oil Co's of gouging (they're down to fracking and tar-sands, fer chrissake), labour offshored and screwed down to the point factories fall down, increasing millions disenfranchised of resources, suggestions that GDP includes an ever-increasing collection of intangibles.
Smell the fear.
Though ruled unconstitutional in the 1980s, jailing people over debts has been reappearing in the states in recent years. The state pays the cost of imprisonment, the debtor gets any money posted as bail.
http://www.cbsnews.com/8301-505143_162-57577994/as-economy-flails-debto…
I really do not want New Zealand to go down this route. We know from history absolutely and clearly how bad this works. I think for me this is going to be an absolute issue and I will not be able to vote for any party supporting jailing people over debt.
My issue is that student loans have always been descibed as a loan with a loan contract. Jailing people for there personal loan level is not a pathway we should be going down. Let alone a nebulous sinking lid policy of "the most non-compliant".
I think the governement should be going after outstanding loans, but I think it should be doing it through treaty with other juristictions, in what is essentially a civil process getting a judgement against assets of that person. Of course, this would mean two way cooperation which would probably wreck New Zealands attempts to be a "financial hub" (aka place to stash hidden assets).
I've read mediaeval history, with relish, for years now.
It's quite a good guide to the future...the Future (courtesy some old white guy called Cohen)
"You don't know me from the wind
you never will, you never did
I'm the little jew
who wrote the Bible
I've seen the nations rise and fall
I've heard their stories, heard them all
but love's the only engine of survival
Your servant here, he has been told
to say it clear, to say it cold:
It's over, it ain't going any further
And now the wheels of heaven stop
you feel the devil's riding crop
Get ready for the future:
it is murder"
Class of '13: what's the consensus on the 'riding crop' in this 'ere Budget?
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