English says Budget 2016 to include spending brought forward from 2017; says money set aside for tax cuts in 2017 reprioritised for debt reduction; still committed to tax cuts 'over time' and either in 2017 or after

English says Budget 2016 to include spending brought forward from 2017; says money set aside for tax cuts in 2017 reprioritised for debt reduction; still committed to tax cuts 'over time' and either in 2017 or after
Finance Minister Bill English speaking to reporters in Parliament on August 25, 2015. Photo by Lynn Grieveson for Hive News.

By Bernard Hickey

Finance Minister Bill English has sketched out the overall structure of spending and debt repayment to be announced in Budget 2016 on May 26 and appeared to kick the prospects of major tax cuts down the road to after the 2017 election.

It showed the Government has chosen debt reduction rather than continuing spending at its current planned rates, and instead of locking in a big lump of its spending allowance for tax cuts next year.

English said spending originally planned for 2017 would be bought forward to 2016 and money set aside for tax cuts in 2017 would instead be re-prioritised for debt reduction.

Speaking in his annual pre-Budget address to the Wellington Chamber of Commerce, English said the Government had previously set its new spending allowance for Budget 2016 at NZ$1 billion, before ramping up to NZ$2.5 billion in Budget 2017 to include room for tax cuts before the election later in 2017.

But English said lower nominal GDP forecasts from Treasury and extra spending on infrastructure to cope with population growth meant the new spending allowances would be rearranged for 2016 and 2017 in the May 26 Budget so the Government could still meet its target of reducing net debt from around 25% now to around 20% by 2020.

"With the revised allowances, a portion of spending previously earmarked for Budget 2017 has been brought forward into Budget 2016 in recognition of additional spending pressures," English said in speech notes released before the speech.

"Another portion of spending previously earmarked for Budget 2017 has been used to reduce Government debt, to help reach the 2020 debt target," English said.

"The capital spending allowance, which is for one-off investments in infrastructure and other public assets, will also be lower than previously signalled to allow for more debt repayment," he said.

"However, a significant amount of additional investment will be funded by re-prioritising within the Crown's larger balance sheet."

English said these changes to allowances would "reduce spending by around NZ$1.2 billion over the next five years, helping to further reduce debt and meet the Government's 2020 debt target."

"Lowering income taxes remains a Government priority.  In particular we want to address the higher marginal tax rates faced by low and middle income earners as their incomes continue to rise," he said.

"However, as we've always said, tax reductions remain dependent on fiscal and economic conditions. With continuing tight fiscal conditions, we don't currently have an explicit provision for tax reduction in the fiscal forecasts," he said.

"At this point, we've prioritised additional debt repayment over setting aside money in Budget 2017 for tax cuts."

English said the Government was still committed to cutting personal taxes over time, " and will consider these either in Budget 2017 or after -- as and when the fiscal situation improves."

Warning to Auckland Council

Elsewhere, English fired a shot across the bows of the Auckland Council ahead of its August 19 decision on whether to accept the recommendations of the Independent Hearings Panel on the Auckland Unitary Plan.

English said Auckland needed around 13,000 new homes built each year for the next 30 years, but it was currently only building 9,500 houses.

"The Government's very clear expectation of Auckland Council is that it will approve a plan in August that delivers this," he said.

"It is for Auckland to decide how and where that target is achieved."

Diverting from his speech notes, English later said the Auckland Unitary Plan decision would be the single biggest decision affecting Auckland house prices and New Zealand prices more generally.

Political reaction

Labour Finance Spokesman Grant Robertson said the Government's decision to reduce its capital spending allowance was the exact opposite of what the Reserve Bank said yesterday was needed.

“Bill English has signalled a Budget money-go-round that fails to meet the need for investment to grow the economy. He plans to cut funding for capital projects now, just as the call for investment grows," he said.

“Labour believes the Government should be investing in much-needed essential Auckland infrastructure such as housing and transport, and support the regions to develop high value industries and decent work."

ACT Leader David Seymour said he was disappointed the Government had refused to cut taxes in this or next budget.

“Abolishing corporate welfare would have given the Government an opportunity to cut taxes”, Seymour said.

“Under this Government, corporate welfare has risen to $1.344 billion a year - a cost of $752 per New Zealand household. These handouts have included payments for sheep given to a Saudi businessman and a boat-building company owned by the world’s seventh-richest man," he said.

“I would rather see that tax given back to households and businesses to decide for themselves what best suits their needs. Abolishing corporate welfare would save enough to allow the corporate tax rate to decrease from 28% to 22.5%, or to scrap the top income tax rate of 33%. Either of these is a far better option than continuing to allow politicians to pick winners."

(Updated with more detail, reaction)

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10
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Debt reduction. Good. Governments should not be allowed to go into debt anyway.

I'm afraid no reputable economist agrees with you. There is a valid debate about whether they might print the money- or borrow it from themselves, as many countries have done since the GFC; but to commit to no government debt would not allow any counter cyclical spending or investment. Look at the position Greece is in, where they are now bound to the rule you would have them apply.

Yes lets look at Greece. Used debt freely, counter cyclical to their economic reality, now screwed.

Greece hit 300% debt to GDP for government borrowing, unsurprisingly they got in serious trouble. They are down to 200% and are still in serious trouble.

Don't be a dummy. Greece is in trouble because their debt is in a currency that they can't print. Once they surrendered their ability to print their own currency, they became slaves.

joining the euro was there downfall, if they had stayed separate they could have devalued
https://en.wikipedia.org/wiki/Greek_government-debt_crisis

We're almost at 48% debt to GDP ratio. That's bad. Putting $100m or so towards government debt is a good idea (it's not enough to remove our money supply from existence).

Australia has 20% GDP and Switzerland (John Key's favourite) is 15%. Those are figures we should be at rather than National's continuous borrowing strategy.

Ridiculous comment. Government debt = private sector savings/Assets. No government debt = no civilisation.

it is good to have debt in times of inflation, but not as a means of trying to create inflation.

Debt is not a requirement to civilisation at all! . What utter bunk. Ditto I say. Ditto It IS however the fundamental corner post con of the concept of privatisation

Lower nominal GDP growth at a time when there are pressures to increase the infrastructure to cope with population growth........crikey BE you are going to get to get a roasting on here today!!

If he puts money into infrastructure it would lead to lower house prices, he doesn't want that.

OCR headed for 1.00%

Not a dog's show - by keeping the dollar high it makes farmers poorer and allows internationals to buy more NZ land. We are Switzerland of the South Pacific....

I'd say we're becomming like Greece in letting the very wealthy get away with not paying sufficent investment property tax. Time to look towards Iceland's direction and support our major economic pillars; Exports and Tourism.

We are never going to be like Greece, these guys are basically lazy and they borrowed money with NO INTENTION of ever paying it back. What someone needs to explain to me however is how come everyone is in Debt ? who is actually lending all the money to balance this ? In my mind its impossible for every country in the world to be in debt, if so there is something really crooked in the monetary system.

I recommend having a look at how money is created. Money creation is privatised and primarily done by banks. As an example say someone puts $1000 in the bank and the banking regulations allow $9 to be lent for every $1 deposited then that $1000 allows the bank to lend $9000. The money is created by the loans. There is a balance but it's not 1:1. Banks have to maintain their capital to lend ever increasing amounts like they are now.

So yes every country in the world can be in debt. It's not crooked but there's some really poor decision making going on.

So really money has no value when you can just print more of it, or worse still you just change the numbers in the monetary system and add some extra zeros ? I guess this all came about when we moved away from Gold, there was a point in time you had to physically have something that was limited in supply and you couldn't just make more of it at no cost. No wonder the world is going to hell in a handcart. It doesn't take a rocket scientist to see that one day its going to collapse like a house of cards.

also once loaned that debt then becomes an asset on the books whilst the term deposit is a liabilty
the only way to reign in the lending is to make the banks hold more capital, that way they either have to entice more people to put money in the bank with higher interest rates, borrow from overseas, ask their shareholders to tip more in or not lend as much.
this is in the RB's control, as in aussie Apra have increased the requirements for certain tyes of lending

I guess their Banks (owners who are French and German) were the real lazy one Carlos cause THEY got 91% of the first bailout, 100% of the second, and the THIRD bailout ....nothing for Greece again.

Won't be too much air in the tanks after that.

I'm guessing the OCR will be 0.5% by this time next year.

I would have hoped that long before then somebody in The Powers That Be that (are trying to) run the country realise that continually dropping the OCR is not achieving what they want it to and just possibly might have tried something different...

But then I always was a hopeless optimist.

why am i not surprised that this government would kick something down the road to do later

I would like to see lower Govt expenditure addressed perhaps by transferring things the private sector to do, possibly better and also removing expenditure from areas Govt should not be doing at all.

That's good news.
Leave the tax cuts for when the crisis begins.

Don't you mean "Leave the tax cuts for the 2017 election"

am i cynical, wont it be vote for us and we will give you a tax cut once we are back in

Prudent economic management. I like that. We mustn't go on the spending binge that the Aussies are currently on.

I don't often congratulate this govt but I will say debt repayment is a priority over tax cuts. Big tick for that. And to signal any tax cut is directed at low to middle income nz is also a good thing. It seems like they are stealing the policies of the Helen Clark led labour govt. Hmmm a centrist national govt!!!!. But if they look like losing an election in 2017 I'm sure tax cuts will be back on the table. As for surpluses, this is driven by mass private borrowing so it's artificially propped up I think. As for comments on this thread about nz having 48% debt to GDP, and comments about Australia, I suggest people look at tradingeconomics.com and view country by country. On that website it shows nz with 30.43% debt to GDP and it shows Australia with 33.8% debt to GDP. Nz has one of the lowest govt debt to GDP in the developed world. And one of the few to be in fiscal surplus. But as always if private debt, business debt and agricultural debt is added then it is a different story. I think last time I looked we were 242% debt to GDP with all debt factored in

thats the scary part, if NZ get into trouble will the government balance sheet be used to bail out the indebted and private debt at the expense of the taxpayer as to what happened in greece and led to the mess they are in now

has someone at ACT pointed out to david he has gone off message
Abolishing corporate welfare would have given the Government an opportunity to cut taxes”, Seymour said.
“Under this Government, corporate welfare has risen to $1.344 billion a year - a cost of $752 per New Zealand household. These handouts have included payments for sheep given to a Saudi businessman and a boat-building company owned by the world’s seventh-richest man," he said.

“I would rather see that tax given back to households

Actually I think fair play to Seymour. I don't personally agree with his philosophies but he is starting to do a good job highlighting some inconvenient truths for the Nats. They might actually rue the day they parachuted him in because he could end up being a longterm thorn in their side.

Personally I am pleased to see tax cuts off the table when there's clearly plenty of infrastructure, education and health issues to deal with. The results of the drive to deliver a short term surplus at all costs has been underfunding which is now starting to show in many areas.

Interesting to see Bill concede the costs associated with rapid population growth. He had previously led me to believe the benefits were all one way!

Possibly some job growth, just hope they don't expect to bring more migrants in to do those jobs.

Being squeezed at both ends

Tonight on TVone news Bill English concedes that due to pressures from migrants on Education and Health, the promised tax cuts have been cancelled and the funds used instead in providing new schools and increased health services

So, domestic home buyers who are under pressure from increasing house prices will now not get any increase in take-home pay from promised tax-cuts - because of increasing demands on services from migrants

Out of control migration now showing up in costs on existing infrastructure and services

so more infrastructure needed, more schools, more hospitals, more houses, all needed for the great Ponzi called immigration costing our government more money
please remind me again BE why this is a good problem to have
Strong migration is a good problem for the economy to have,” says Finance ­Minister Bill English. “The opposite can mean the economy isn’t doing well compared with others.”
http://www.listener.co.nz/current-affairs/money/economic-pros-migration/

Yeah, where's the payoff that makes this pressure on infrastructure and facilities worthwhile? I don't see it. This isn't like the 1950s or 1970s when there were genuine labour shortages and they needed warm bodies in the factories. We've got high unemployment already, including high unemployment amongst immigrants. GDP per capita is dropping. What exactly are we achieving here? What's the upside? I don't count an out-of-control real estate bubble or depressed wages as an upside.

Nah, it'll be fine. Pressure will be taken off existing infrastructure by the inevitable mass exit of unwanted Gen XY Kiwis and their kids. It's all part of the plan.

the same ‘demanding’ migrants who will replace the flood of BBRs exiting the workforce over the next two decades

English claimed the tax cut deferral was not just for infrastructure creation - also debt paydown

It was pay-down-debt in AM that became transformed in the PM to meeting the demands of migrants

Nothing is set in concrete - it's quicksand

"...meet its target of reducing net debt from around 25% now to around 20% by 2020."

So what exactly are the $ amounts BE - 25% to 20% of what by 2020? Hardly a SMART objective that you're setting.

In the words of JK - "show me the money".

You have borrowed plenty at the same time as selling off assets. Current NZ debt below...and thanks to the bright person who posted this link first.
http://www.nationaldebtclocks.org/debtclock/newzealand

exactly if GDP rises by 1% per year and we don't borrow anymore you can meet that target by doing nothing.
oh that's right that's how this government operates, do nothing and hope it fixes itself

14
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Isn't amazing how once, when our population was a quarter of what it is now, the Government of the day built a nationwide railway, we had insurance companies, a shipping line, we built hydro stations, tunnels and roads and so it goes on. Either our IQ has dropped dramatically or we are being manipulated and controlled by a a very powerful international economic consortium. Reducing Government debt is the silliest idea I have ever heard. When it has been reduced to zero what do we do then? Build it up again? So what is all this austerity for then? Private enterprise has never ever been able to do everything. There is a role for Government and a role for private enterprise but not one to the exclusion of the other.

Patricia for PM! the next Helen Clarke?

" Either our IQ has dropped dramatically or we are being manipulated and controlled by a a very powerful international economic consortium"
Both perhaps.
The idea of a Government working primarily for the good of its country's citizens, building infrastructure and funding education, health and public good has been replaced by a 'clever' financialisation of everything.
The new Rulers are the large corporates who are not interested in social good unless it hurts the bottom line, and the modern govt are bystanders trying to exit all publicly funded activity.

...the Government of the day built a nationwide railway, we had insurance companies, a shipping line, we built hydro stations, tunnels and roads and so it goes on

We also had a powerful army and navy. It was likely the result of a combination of factors that could be summed up as generally Victorian :

Imperialism
Racial Manifest Destiny
WASP Patriarchy
Enforced public morality
Christianity
No mass media
Large families

I for one never want to go back to that mono-cultural wasteland. It was a sterile phase, one we came out of, thankfully. Those who look back and pine do so with wilful blindness.

Yeah I know, most other people too. The comment is merely pointing out factors that built the foundations of our country. It seems likely to me that we are where we are today because of things that happened in the past.

That said I'd rather go back than be disenfranchised and poverty stricken, especially if I could have an elite position.

Ive always thought that NZ society was damaged from the start due to the migration pattern, depressions and world wars. We had a high per capita death rate in the wars I believe a generation of spinsters.
So we have drinking problems , family violence and youth sucide.
Annecdotally, i read a extract in the ODT which reported that as early as 1906 Dunedin was horrified by the senseless family violence among the rich and the poor.
Cheering subject for a friday morning.

At least housing was achievable.

And large families...

Having done a huge research project that involved reading lots and lots and lots of newspapers from 1955 and 56, I'd never go there. You can bet that anyone getting all misty-eyed over the 1950s was a white man. Lots of stories about things like men beating their wives severely, to the point of hospitalisation, but being acquitted because judges thought that reasons like 'she bought a pair of slacks and no wife of mine is going to wear slacks' were totes OK and she deserved it. Enforced public morality my arse. Double standards and hypocrisy.

Yeah everyone did that...rolls eyes.
But yes everything is so much better now that we have people like Mother Merkel in charge.

Sterile phase huh? - thats an unfortunate turn of phrase

The pressures of modern life in Auckland are such that the young can no longer afford to have children - isn't that a form of sterility

Yes they were anything but sterile. Also most of our greatest heroes come from this time. It seems that any time before now was one of unrelenting misery. I suspect this is more a myth than that times past were golden.
For how could such miserable people leave behind such great monuments?

What lovely euphemisms for genocide and slavery.

It was the Germans and Spanish who gave that impression due to their lack of British "empathy".

Bollocks. The industrial revolution and the British Empire were built on that foundation of slavery. Slaves were one of the most profitable commodities there was, up until it was outlawed in 1807 (or was it 1809 - I never remember which) and the basis of those nabob fortunes. Then there was cotton, sugar, rum, all dependent on slave labour. Wool trade less so, but the mills had slave labour in all but name. The Dutch weren't squeaky clean either. The British do get credit for sending the Navy out to patrol for slave ships later on, though.

If you're going to spout history, you have to be honest about the grey areas.

You can't judge the past by the standards of today. Back then if you let your guard down or became soft it was all over rover.

Aaaah, the ol' heads I win, tails you lose gambit. Can't judge the past by standards of today, but can judge today by standards of the past.

It would be interesting if you got your wish of a Neo-feudalist paradise. I'm afraid it would be horribly disillusioning for you, and you'd find that it isn't suburban fantasists who'd seize the reins of power, but organised crime. You wouldn't make it through the first home invasion. But I don't begrudge you your daydreams. When I play Neo-Feudalist Make-Believe I pretend to be a princess, and take the bottom out of the fluted pie-tin to wear as my princess crown. You can borrow it when it's your turn to pretend to be the princess.

kakapo@yourfantasyonline.com. Ed. is this what interest.co has come to ?

Buying domain name. BRB.

Kakapo, I don't have to pretend, I already am a prince in spirit.
I don't really advocate a full return to feudalism. It's more like one of those space operas where you have feudal stuff mixed with high tech weapons and spaceships.

What, you mean it's all a dastardly plot to get everyone into debt serfdom? Surely not? Er, I mean, er...

Bill and John are following in the well trodden path of Auntie Helen and Uncle Michael. Running a balanced budget or a surplus puts pressure on the RBNZ to lower interest rates. Lower interest rates leads to more lending and higher house prices. Higher house prices leads to more house building. More house building leads to more infrastructure construction which together means jobs for everyone who can get to work most mornings. Result, re-election.

Eventually a recession comes along and we find that in paying off $30,000,000,000 in government debt by borrowing an extra $100,000,000,000 in household debt we are more indebted than before. Hey, no one saw that coming! More lending leads to more debt? Who would have thought?

http://www.interest.co.nz/sites/default/files/styles/full_width/public/e...

Although Libya apparently had no external debt and things didn't turn out too well for them. Maybe having high debt can forestall foreign invasion?

Well, the point is to extract as much as you can from the serfs, so lending them money to get them working for you works much better, does it not?

https://www.harmoney.co.nz/how-it-works/interest-rates-and-fees

er, you forgot the part about the fact that it broke us. We only survived for as long as we did by building higher and higher tariff walls around ourselves, adding costs to maintain a fiction. In the end it was unsustainable, with distorted economics/fx rates/interest rates/etc, and we crashed out, almost getting trapped with a seriously deluded PM who couldn't keep the fiction together (at least without alcohol).

It is easier to sanitise history the further the everyday problems fade from the collective memory.

WW1 and WW2 cost a huge amount as well.

That's one version of history David. Another is that the US finally managed to completely destroy the British Commonwealth Free Trade Zone we used to belong to. It took them two world wars to get Britain so indebted to them that in a final act of obeisance to their US masters they abandoned their friends and joined the EU. This effectively made New Zealand, Canada and Australia into US colonies.

Think I'm joking? The first world war debts to the US from Britain and France meant Germany was unable to recover economically until a suitable tyrant was able to kill off his enemies and borrow the money from the US merchant banks to re-arm. Then he went feral.

Sorry, that sounds that conspiracy theory, but it isn't really, it's just the consequence of the US pursueing its own self interest and far better than many of the alternatives.

In 1934, Britain had defaulted on her giant First World War debt to the USA. This is now worth up to £225 billion in today’s money, depending on how you calculate inflation. Read more

To be fair I don't think the US caused WW1 by themselves but they certainly took advantage of it and WW2. I blame the British for seeking to destroy Germany as an industrial rival to the British Empire and in the attempt unleashing all manner of monsters upon the world. Certainly the US had it in for the British Empire - probably because we burned down the White House in 1812.

I wasn't seeking to blame anyone, although it probably looked like it. Things happen for reasons, but the version of history that is adopted is more a reflection of what is a good story that serves the interests of the storytellers and panders to the prejudice of the listener. It is usually a wonderful bit of distracting fantasy.

A good example is that the German surrender in WW1 became seen as a sort of victory in Germany as the army had defended the borders. In the same way Dunkirk became a story of great deeds and escape from mass annihilation rather than the crushing defeat that it was.

I should probably have added that previous to World War 1, in European conflicts the debts between allies were written off on the basis that one ally might have lent more but that meant the other had done more actual fighting. Sort of each contributed according to their means. The US, however, chose not to do this as it served their strategic interest to weaken Britain's worldwide naval and trade dominance. They also bungled the transition from an absolute monarchy in Germany to something more democratic, seeking to impose a republic on the French model rather than a constitutional monarchy on the British model (which would have been more evolutionary rather than revolutionary and in hindsight would have been less chaotic). Exactly as in Iraq, chaos engulfed Germany. Eventually a suitable tyrant emerged, killed his opponents, and imposed order. That is how most revolutions seem to end up. The French revolution created Napoleon ("the killer of Frenchmen" - 600,000 soldiers set off for Moscow, 20,000 came back), the post WW1 revolution in Germany gave us Hitler, the Russians got Stalin, the Chinese got Mao, all mass killers of their own people.

It may be that Britain is the ideal place for a free trade zone to be based. Most foreign exchange takes place there to this day, which may reflect geography, language and legal structure as much as institutional ability.

British National Archives have a podcast, amongst other things, reporting on all kinds of interesting revelations coming to light as secret papers are declassified. All the WW2 skeletons are falling out of the cupboard at thet moment.

.

Or maybe it is just a real life conspiracy theory objective.....to bankrupt us all.

http://www.zerohedge.com/news/2016-05-11/what-will-global-economy-look-a...

To suggest reducing govt debt is silly is simply silly to suggest. Fact is they borrowed in usd funds and any reduction prior to a NZD fall is an excellent idea. Govt has borrowed this money from overseas not from inside nz boarders. We are vulnerable to a currency correction. 30.43% debt now could easily become 45% debt with a simple downward m9ve in the NZD. That is the biggest risk. The debt office should be issuing new debt in nz and paying off the USD denominated debt as quick as possible. Bill I hope you are listening.

Just a general advisory comment in the interest of literacy. Just as lose and loose are completely different words so too are boarder and border.

I am so indebted to you........Thank you Mr English. But ..but...Please keep your hands out of my pockets.

http://www.zerohedge.com/news/2016-05-12/dear-homeowner-what-exactly-do-...