By Bernard Hickey
Finance Minister Bill English has named May 15 as the day for Budget 2014, but has hosed down expectations it might be the venue for the announcement of tax cuts.
He said workers were now correctly expecting to benefit from a recovering economy through wage increases, particularly if they were skilled and their companies were doing well.
English told Parliament's Finance and Expenditure Select Committee the Government hadn't considered tax cuts in the Budget, the last before the 2014 General Election.
English said the budget would be predictable and focused on managing a growing economy, rather than managing a recession.
"In some ways it is a bit more of a challenge because people's expectations are a bit higher, but we want to avoid the mistakes of the mid 2000s where in a growing economy Government spending took off, housing prices took off again, and we ended up pushing ourselves into recession," English said.
"Interest rates will inevitably rise and we want to make sure government action doesn't put more pressure on them, so that means being reasonably careful with our spending, although there are opportunities to spread the benefits of growth," he said.
"We are starting to look at what would happen with surpluses, but a top priority for that is reducing debt. We have run Government debt from NZ$10 billion up to around NZ$65 billion by the time it peaks, and we need to get that back down because that's NZ$55 billion of debt to help us through the hard times. We've got to get it back down so we could do that again if we needed to."
Wage increases expected
English said workers could see the signs around them that the economy was better. Workers were now working more overtime and the days of wage cuts were behind them.
"I think there is going to be an expectation, particularly by those people with skills in demand, that they will be doing better than zero pay increases," English said.
"I think businesses are going to find that as they need to retain skilled people and be attrative places to work then increased pay is going to be part of that package. I think people in the workforce know that if their business is succeeding they can get a share of that."
Asked if there would be anything for households in the budget, English said voters would have to wait and see.
"The Government isn't going to go splashing cash around. The best thing we can do for a lot of these households is continue to support a business environment that means their workplace is going to continue to succeed so that any extra cash they receive is through their pay rather than through any Government subsidy system," he said.
Interest rate outlook
English said it was the Reserve Bank Governor's call on when to increase interest rates and by how much, but that households should be expecting an increase.
"The RB has signalled over the next - who knows - the next two or three years, interest rate increases of one to one and a half percentage points so households need to be in a position to handle that if they've got high debt," he said.
Governor Wheeler said in December that the OCR was expected to rise 2.25% over the next two and a quarter years.
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