Budget 2011 bets on growth

Budget 2011: Government cuts just NZ$1.2 bln from spending over 4 years; relies on strong economic growth forecast to lower debt track

19th May 11, 2:03pm by Bernard Hickey

By Bernard Hickey

Finance Minister Bill English has unveiled an earlier than expected move back to surplus and lower borrowing requirements for the next four years.

The move back to surplus is partly funded by net spending cuts of NZ$1.2 billion over the next four years. They include widely telegraphed moves to halve the government’s member tax credit contributions to KiwiSaver, tweaks to Working For Families payments and slight changes to Interest Free Student Loans.

But most of the improvement in the deficit and borrowing track is driven by GDP growth forecasts for the next four years of 1.8%, 4.0%, 3.0% and 2.7%.

Over the last three years since the Global Financial Crisis the government’s growth forecasts have overestimated growth by 2-3% of GDP. See my opinion piece on how this budget is 'tweaking and fiddling' rather than fixing a structural budget deficit.

Here are the highlights from the budget:

· The budget operating deficit before operating gains and losses (OBEGAL) is forecast to be NZ$16.7 billion in 2010/11 (8.4% of GDP), before falling to NZ$9.7 billion (4.7%) in 2011/12, NZ$4.1 billion (1.8%) in 2012/13, NZ$0.7 billion (0.3%) in 2013/14 and a hitting a surplus of NZ$1.3 billion in 2014/15. This is one year earlier than expected in December and two years earlier than expected if the government had not restricted spending after the February 22 earthquake.

· Treasury is forecasting growth of 1.0% in 2010/11, 1.8% in 2011/12, 4.0% in 2012/13, 3.0% in 2013/14 and 2.7% in 2014/15.

· The government is cutting spending by NZ$5.2 billion over 5 years, but is redirecting NZ$4 billion to health and education. The net spending cuts are worth NZ$1.2 billion over five years.

· The NZ Debt Management Office plans to borrow a net NZ$15.9 billion over the next four years, which is NZ$2.5 billion less than forecast in December.

· The government plans to raise NZ$5-7 billion over 3 to 5 years from part privatization of Meridian Energy, Genesis Energy, Mighty River Power and Solid Energy, along with a sell down of the government’s stake in Air New Zealand. See Alex Tarrant's article here for more detail.

· KiwiSaver member tax credits will be halved to NZ$10/week and the minimum contribution from employees and employers will be increased to 3% from 2% from April 2013. This will save NZ$2.6 billion over 4 years. See Alex Tarrant's article here for more detail.

· The government will look at a one-off KiwiSaver automatic enrollment exercise (with an opt out arrangement).

· Working For Family tweaks will save NZ$448 million over 4 years, while Student loans changes will save NZ$277 million over 5 years. See Alex Tarrant's article with more details on Working For Families changes.

See my opinion piece on what the budget means for borrowers, savers and home owners.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

63 Comments

by Gareth Vaughan | 19th May 11, 2:12pm 1305771133

This from the NZDMO:

"The New Zealand Debt Management Office (NZDMO) announced today details of the Government’s 2011/12 domestic debt programme. The NZDMO intends to issue up to $13.5 billion of bonds in 2011/12.

“Bond issuance has peaked with this fiscal year’s $20 billion bond programme” said Mr. Philip Combes, Treasurer NZDMO. “Pre-funding and Budget 2011 initiatives have reduced overall future borrowing programmes from 2011/12 compared to the December forecasts”.

In coming weeks the NZDMO intends to launch a new nominal 2023 bond maturity. Further details will be announced prior to the first tender of the bond.

The NZDMO remains committed to issuing a 20 September 2025 inflation-indexed bond. This would form part of the 2011/12 bond programme.

Finally, to further promote liquidity in longer bond maturities, the target tranche size for nominal bonds maturing on or after 15 December 2017 has been increased from $10 billion to $12 billion.

The target tranche size for nominal bonds maturing in April 2013 and April 2015 remains at $10 billion."

by Gareth Vaughan | 19th May 11, 2:13pm 1305771202

Bill English also talking about issuing an earthquake bond.

by Mark Thomson | 19th May 11, 2:17pm 1305771473

"most of the improvement in the deficit and borrowing track is driven by GDP growth forecasts for the next four years of 1.8%, 4.0%, 3.0% and 2.7%."

What happened to the 4-5% growth over 2 years the PM predicted just 3 days ago?

by the_dc | 19th May 11, 2:23pm 1305771830

To be fair, he was talking about wage growth, not GDP growth.

Not that either can be forcast with much accuracy.

by meh | 19th May 11, 2:31pm 1305772272

And he also said wage growth would "well and truly" outstrip inflation. Wage growth of 4-5% was his educated guess. Inflation at 4.5% is well and truly outstripped by 4%. Yeah right.

I'll put my faith on budget forecasts. Yeah right.

by Mark Thomson | 19th May 11, 2:35pm 1305772527

You're right - I skimmed it a little too quickly. And it's conceivable that he meant 4-5% over two years, not per year. We'll see.

by michael | 19th May 11, 2:31pm 1305772290

Maybe he meant Australia's growth on wich he relies heavily

by Matt S | 19th May 11, 2:21pm 1305771693

http://www.flightcentre.co.nz/cheap/cheap-flights/australia-flights

http://www.daff.gov.au/aqis/travel/entering-australia/moving-emigrating

Oh, and getting your stuff there:

http://www.alliedpickfords.com/nz-en/movinghouse/movingoverseas/movingtoaustralia/Pages/MovingtoAustralia.aspx

by childofthesun | 19th May 11, 2:27pm 1305772029

Thanks Matt. Very helpful.

Can anyone advise what happens when these optimistic growth forecasts fail to be realised?

by Matt S | 19th May 11, 2:32pm 1305772341

AUSTERITY .. see eventually it will be working NZr's who will have to pay heavily for the betrayal by our politicians. This just delays the inevitable day of reckoning. If you want to fast forward a few years and see our fate, take a look at Ireland today.

by childofthesun | 19th May 11, 2:43pm 1305772983

Yep, I can't see where the investment will come from to achieve these projections. We're now in the zone of requiring a substantial uplift in business and consumer confidence to deliver. The conspiracy (sorry I meant collaboration) of the polllies and banks to inspire us to go out and borrow to spend won't happen this time. Major smoke and mirrors activity expected from now until Nov 26th.

by Matt S | 19th May 11, 5:27pm 1305782867

Here's a few points about our country that you will never hear on the television news;

1. Public expenditure is so huge that its totally out of proportion to our earnings.. Our Gummit begs, steals and borrows over $85 billion and yet our GDP is just $189 billion. The $85 billion budget is called a "zero" budget... hmmm. Got a calculator??

2. Governments are consumers, they produce nothing. They don't create jobs, they don't create wealth, they are a burden on our economy and society.

3. The only taxpayers that actually count are 1.7 million workers in the private sector. These workers plus businesses support the remaining 2.7 million others. If NZ were to star on the TV reality show "Survivor", just 4 people out of an island of 10 would be working to support the rest. If the island were democratic and socialist then those 4 workers would be outvoted every time they wanted change.

by Andrew R | 21st May 11, 10:37pm 1305974257

Dooesn't our tax money get used by governments to produce roads, health, education and so forth -- all stuff needed by private business to operate and for people to enjoy and be fulfilled by life?

In your drivel about 4 workers supporting all the others, aren't you ignoring the unpaid housework that goes into supproting those workers. How many of those 2.7 million are of working age, how many are children, how many retired?

by steven | 22nd May 11, 8:53am 1306011214

Public health costs us 8% of GDP it fairly effectively capped in terms of cost....

in America its 18% of GDP and within a decade its going to be 36% of GDP unless its brought under control....

So sure I could pay the Govn or I could pay a private health insurer double the amount and maybe not get covered, this is frankly only something stupid ppl would agree to.

Education....it costs about $6k per annum to educate a child in a NZ public school, or I could spend $12k to $15k per annum doing so in a private school.....it makes no sense, and in fact isnt doable by a family that isnt bringine in well over $100k to do so and thats one child...

Democracy, Simple then go buy your own island and run it as you choose.

regards

by Snarlypuss | 19th May 11, 2:45pm 1305773119

You mean, The Queen coming to New Zealand, Matt S, to mend bridges with those hard done by during the Maori Wars.....?!

by Matt S | 19th May 11, 5:05pm 1305781547

Geez !! you made me choke on my coffee ..

by We Are Stuffed | 19th May 11, 2:39pm 1305772760

Credit rating downgrade. Huge hike in interest rates. Property market collapse. Bank Collapses. 100% Foreign owned NZ.

by Casual Observer | 20th May 11, 9:25am 1305840320

Foreigners won't get Fonterra much as they may want it :-)

by meh | 19th May 11, 2:25pm 1305771944

The NZ Debt Management Office plans to borrow a net NZ$15.9 billion over the next four years, which is NZ$2.5 billion less than forecast in December.

So, no real change then. We still have to continue borrowing.

by Muppet King | 19th May 11, 2:26pm 1305771998

Fail budget. I'm not economist, but I can tell you we won't hit that GDP target unless they fudge the numbers. This busget fails, its not saving enough, they talk about saving 1.2 billion over 4 years etc, we burn through that in a month. Hes not doing enough.

by neco | 19th May 11, 5:51pm 1305784270

Nothing in the budget for Muppets then... :-( Bit surprised really, I thought our PM was one of your lot ;-) ;-D

http://www.reelcollectibles.co.nz/images/muppets/mr/muppets_master_replicas_gonzo_photo_puppet_replica_3.jpg

by Basel Brush III | 19th May 11, 3:09pm 1305774551

Budget. What Budget?

by Colin Riden | 19th May 11, 3:46pm 1305776763

Bill and John's 'Keep Digging' budget!

by SmoKey | 19th May 11, 3:11pm 1305774676

So employees will lose initially $512 starting 1/7/2011, have 1% more deduction from 1/4/2013 to get 1% matching contribution. Wonder how employers, small business will feel about the additional 1% they have to pay. And all this depending on the election results . Robbing Peter to pay Paul ?

by Elley | 19th May 11, 4:56pm 1305780983

"Wonder how employers, small business will feel about the additional 1% they have to pay." I'd say pay rises (or rather the lack thereof) will make up for it...

by Dannte | 19th May 11, 10:17pm 1305800271

Re: PositiveMoney

See this comment:

Bruce Wright June 22, 2010 - 6:20 pm | Link to this comment

I honestly find it hard to believe this will go anywhere. The Bank of England is at the root and center of the entire system of world wide fiat currency, which is the cause of the problem. But, I am listening, and hopeful. You’ve apparently got part of it correct. The banks should not be in charge of printing out money. But I don’t see the real issues properly addressed. Our money must be backed up by tangible assets; not created out of thin air. And, most important, it is imperative that the ‘rule of fractional reserves’ be abolished. Quite simply, those two issues are the backbone of their control over us.

by Wolly | 19th May 11, 3:25pm 1305775549

I expect an announcement on a revised immigration policy ....the gates will be opened up to all and any with the loot to hit the property sector running. It will be sold as a drive to build on the numbers with skills in the building sector and related thingees. Bit of hype ,mixed with spin BS and poodle media comments to arrive at the product....

by Sepherial | 19th May 11, 4:53pm 1305780829

Wish I could SHORT bill english with long term puts. You would clean up and never worry about margin or the bills again....

Its a sure fire winning trade...he must be thinkin energy prices are dropping to pre 1999 prices in his faulty projections oil at 20 per barrel and petrol $1 per litre in the near future...

Without cheap plenetiful energy Bills budget is quackery economics...

Energy makes the world go round Bill not printed fiat currency.

by LloydM1 | 19th May 11, 11:22pm 1305804131

Actually hard commodities will make the world go round, obviously this includes energy sources.

JP Morgan in collusion with the Pentagon have sent a team of bankers to Afghanistan in an attempt to secure the countries gold reserves, who would have though eh. You have the supply of opiates secured for sale of heroin and use by Big Pharma for their own profits, now bankers looking to plunder precious metal reserves.

So much for fiat currencies then hey! You can just see what direction this is has been heading for some time, and it is not one NZ can insulate itself from in any way. This includes mining, because we will not be in a strong position to negotiate royalty contracts once we are declared broke!

by Sepherial | 20th May 11, 12:10am 1305807059

...indeed LioydM1, however with out energy in puts ie: human or machine, the other commodities dont happen...period!

Libya also comes to mind - oil and the libyan soveriegn wealth fund....

...more dots more pieces to the puzzle...

by LloydM1 | 20th May 11, 12:15am 1305807329

Agreed, energy under-pins all systems.

Argh yes the Libya wealth grab - all conspiracies of course eh ;)

by Sepherial | 20th May 11, 12:47am 1305809233

lol aye

Cue Bono?

by Dannte | 19th May 11, 9:44pm 1305798254

"...relies on strong economic growth..."

It's not even in the small print. Does anybody pay attention to what's brewing OUTSIDE of lil' New Zealand? The planet is facing the biggest monetary failure ever and the news hasn't arrived in NZ politics yet? Amongst the noise of the breakdown I already can hear the naive bunch talk down their ineptitude, "nobody could have seen THAT coming". Well, yeah, duh! They are the same specialists who were stumped by 2008. They think NZ is an island! None of them looks beyond NZ borders. Maybe too scary? Maybe too unfathomable? We rather immerse ourselves in our perpetual Kindergarten of bread and games and Kiwiana polliticking, all the while being jerked by the debt noose we sheeple are all too eager to wear, feeling almost proud to be part of the global flock. We don't want to miss out, do we? One has standards, not? Strong economic growth, growthth, yeth, -th, umm.....

by steven | 19th May 11, 9:56pm 1305799007

Agree...

Throw in that Treasury didnt see it coming, when it was blindingly obvious, seriously under-estimated how bad, have been significantly off since then, but now oh my god expect robust growth....Like man just hang them first.......

regards

PS Bernard.....8% interest rates? that needs some recovery.....pigs might fly...

by Tailslide | 19th May 11, 10:09pm 1305799753

Hammer, nail, head...

by Sepherial | 19th May 11, 10:33pm 1305801220

I agree with what your saying but its flipped the other way. Its about the globalist agenda not the local NZ agenda, and there in lies the problems....

by Matt in Auck | 19th May 11, 10:24pm 1305800667

agreed

we are an insular little cesspool

The rare occasion that I watch one of our national news channels I am shocked by the smug insularity, the cheesy nationalism etc. I mean we still only bloody show the weather for NZ. How about Aus and the Paciifc? I went to the Paciifc islands last week and it was a bloody mission finding the weather forecast. We are lucky if we get more than about 5 mins international news

And the economists are no better than the pollies. They keep smugly proclaiming renewed growth seemingly oblivious to the troubles around the world

by Matt in Auck | 19th May 11, 10:30pm 1305801030

btw boring as hell budget

by Kate | 19th May 11, 10:56pm 1305802616

Ain't that the truth, MiA.

So, the more intriguing question is - who's behind the op to get rid of the IMF guy?

by Gummy Bear Hero | 19th May 11, 11:07pm 1305803226

The NYPD , apparently .......... It seems that they take a dim view of attempted rape in New York City .

by LloydM1 | 19th May 11, 11:36pm 1305804996

LOL, I think the question was, who is behind it. It's not the NYPD, they just made the arrest GBH.

by Gummy Bear Hero | 19th May 11, 11:57pm 1305806241

Gummy isn't a conspiracy theorist , sorry ...... Just the facts , ma'am , we just want the facts ........... Book him , Dan-O !

by LloydM1 | 20th May 11, 12:03am 1305806638

Gummy, all any thinking person wants is the facts and truth. If you expect to get it after what has been decades of lies & spin and BS globally by governments, corporations and supported by the media then you are living under a palm tree on a nice beach ;).

Seriously you say you want the facts, but just where are you going to get them from and how will you ever know you have the facts. Use of words like conspiracy etc are arrogant, as they imply that you know everything to such an extent that all others are wrong.

Sadly the truth and facts are seen as nothing more than an inconvenience to be wrapped in lies and marketed to the slaves

by Gummy Bear Hero | 20th May 11, 12:13am 1305807182

Kate said " who's behind the op to get rid of the IMF guy ? "

......... Are there any facts to substantiate this assertion that there is an agenda to dipose Dominique Strauss-Kahn ?

Or is it simply that he got liquored up and forced himself physically upon a hotel chambermaid .

by LloydM1 | 20th May 11, 12:26am 1305808017

Yes of course it could well be that he has been caught out completely this time and will be allowed to swing. It happens from time to time at the highest levels, and the protective blanket of the judicial systems designed to punish the plebs, occasionally has to be used publically against such individuals. We will see if he to what degree his protection has been removed. It’s all just chess GBH and we are the pawns.

I was not looking to answer Kates initial question, my reply to you was more find out where you intend to get the facts from, of which the answer is still pending…

by the_dc | 19th May 11, 11:54pm 1305806045

Well, allegedly DSK was behind it, and the maid was in front of it.

by Kunst | 20th May 11, 12:30am 1305808203

- yes it was in fact - the domestic small kebab.

by Dannte | 20th May 11, 9:16am 1305839777

He should've been member of the the BIS. They enjoy untouchable immunity and a few other PERKS

NB: DSK successor is a John Lipsky. He was the IMF man in Chile under Pinochet and worked as a senior in Goldman Sucks.

by Kate | 20th May 11, 8:45am 1305837902

GBH no they don't;

http://blogs.villagevoice.com/runninscared/2010/05/nypd_forced_to.php

by Andrewj | 20th May 11, 3:01am 1305817271

Its the 'Spineless gutless budget.

Anyway I see Japan is in Trouble

http://www.telegraph.co.uk/finance/economics/8522690/Japan-plunges-back…

As are the rest of us as `greece implodes.

http://www.guardian.co.uk/commentisfree/2011/may/17/greece-debt-crisis-…

And the USA slips into the mire

http://market-ticker.org/akcs-www?post=186468

by steven | 20th May 11, 7:16am 1305832564

comment on the USA job market...

http://scepticalmarketobserver.blogspot.com/2011/05/dynamics-of-unemplo…

Political crap at the end but otherwise its interesting...adds to the view of a recession in the US....oil price led I think....so its likely this is how the next decade (or two) will play out....oil price goes high, result recession, oil priice drops on weak demand, recession drop corrected after huge Gov stimulus and does a slow recovery...oil price shoots up and back down again...rinse and repeat....and repeat....

and JK thinks we will recover.....its a bad gamble IMHO.

regards

by DC | 20th May 11, 3:20am 1305818457

No mention of a CGT to raise income? Is it because all those that make the rules have vested interests?

by steven | 20th May 11, 6:41am 1305830490

or their core supporters do....

regards

by Wolly | 20th May 11, 5:45am 1305827108

National digging the hole left by Labour. Now you know why Labour doesn't want to take office. Making promises to win power was the big 08 mistake. Clark and Cullen have all but escaped the blame for the shite left behind.

Sorry, but Treasury are smoking the green stuff on this 'growth projection' game. The govt has rushed to cling on to this puff of smoke. The chances of success are remote at best.

So you had best place your bets knowing now what is most likely to happen.

Meanwhile English has dragged out the 170ooo new jobs promise for a second go.....it's all bullshit. Exports are running at max right now on a commodity boondoogle Bernanke cooked up to save the US banking corruption...the piigs are set to bugger the euro.....beijing is in the middle of inflation and bubblemania....the aussie property collapse is underway.....

by steven | 20th May 11, 6:53am 1305831236

While I mostly agree Wolly, HC etc cant take a lot of the blame when thats what voters wanted.......what conventional "wisdom" read right wing ideology said was good....and if HC etc didnt agree we git a downgrade....simple....

I agree on Treasury being crack adicts btw.....they need cleaning out of their ppl who cant think for blinkers....if Treasury thinks it will take 8 to 10% of its resources to dell off the SOE's simple, when Labour gets in, first off decimate them and keep the SOE's...

regards

by Dannte | 20th May 11, 9:49am 1305841782

For F's sake! What the voter wanted!!! What does the voter want? Bread and games and they don't even realize that they are a NY chamber maid.

Clark was the biggest traitor on NZ economical sovereignty by signing for the big boys the FTA with China. The short-sightedness of Labour (and Nats are not better) will cost NZ dearly in years to come. The little production base we had is going going gone. All is left is being a supply farm for their masses of peasants, dragging us down to their level.

And the grading is synonymous with the grading of sheeple. The rating agencies are the agents of the bankster elite. Gosh, we are so happy that we are graded useable for the shear.

by Andrewj | 20th May 11, 6:58am 1305831495

George Soros sells his gold George Soros, the hedge fund investor who called gold "the ultimate bubble", has sold almost his entire holding of the precious metal, leading to fears that the price is about to fall. http://www.telegraph.co.uk/finance/personalfinance/investing/gold/85245…

by Dannte | 20th May 11, 9:35am 1305840942

Umm...he sold his paper gold. Do a bit of research about the difference.

by Andrewj | 20th May 11, 7:00am 1305831659

And on the Greek troubles

jonlivesey 3 minutes ago "The European Central Bank has threatened to stop lending to banks using Greek

government bonds as collateral if Athens changes the terms of the debt.."

Just a bit of pedantry here, but it's actually worse than this.   It's not just "Greek

government bonds" that the ECB would refuse to accept, but also Greek Government *guaranteed* Bonds.

In the past year, the Greek Banks have been in the habit of issuing Greek Government guaranteed Bonds and then lodging them with the ECB to obtain liquidity.   In the past twelve months Greek Bands have issued E87bn of these Bonds which are *in* *addition* to debt issued by the Greek Government itself.

These Greek Government guaranteed Bonds have thus become the main source of funding for Greek Banks.    Without them, we'd have seen a run on Greek Banks that would probably already have brought the Greek Banking system down.   If the ECB refuses to accept them as collateral in the future, the Greek Banking system really will collapse, so this is a very potent threat.   It is a gun to the head of the Euro area.   It's the ECB spelling out the consequences of a default.

And for what it's worth, Irish Banks have been raising liquidity in the same way, and the ECB has been accepting Irish Bonds as collateral while ignoring their rating.   Normally the ECB accepts bonds only if they have an investment grade rating, but it made an exception for Irish Bonds.    So the same gun is pointing at Ireland's head if it follows Greece to default. http://www.telegraph.co.uk/finance/economics/gilts/8524454/European-Cen…

by Casual Observer | 20th May 11, 9:34am 1305840885

How was the trip Aj? This budget convince you your future lies offshore?

I heard that there is word going out to the big dairy farmers to 'buy up more land'. Such is the conviction of those in the know that prices will remain good for a while.

by Dannte | 20th May 11, 9:47am 1305841631

I see the Euro debacle used and trumped up by American interests. Without the mire in Euroland the US dollar would have long collapsed by now.

But Euro is supported by Chinese interests who dump their dollar reserves into Euroland. It'll all wash back. The $ chicken are returning to roost. The pen will Hyperinflate.

by Dannte | 20th May 11, 9:47am 1305841672

Sorry, post got doubled....

by Christov | 20th May 11, 9:27am 1305840477

Another slice of Virtual Pie Joe Public....? it's your favorite..! packed full of thin air and delivered in an empty promise box............

Billy Bob's back in Hells Kitchen.