By Bernard Hickey
Finance Minister Bill English has unveiled his sixth budget and his last before the September 20 election. Here are the 10 things worth taking away from the Budget
1. Here come the surpluses – The Government expects to post a NZ$372 million OBEGAL (Operating Balance Excluding Gains and Losses) surplus in the year to June 30. That's up from a deficit of NZ$2.447 billion in the year almost finished and better than the NZ$100 million forecast in December.
Treasury forecasts the surpluses will rise to NZ$3.485 billion by 2017/18 or 1.3% of GDP.
2. A small lolly scramble – The Government stuck with its new net spending allowance of NZ$1 billion for the 2014/15 year, but has increased it by NZ$500 million over the next three years to help pay for a few (small) goodies for families, home builders and for Defence.
3. It's a (slight) loosening – Treasury's fiscal impulse figures show a contraction forecast in December for the 2014/15 year has turned around to a slight stimulus of 0.1%. That may put a smidgen of extra pressure on interest rates this year or next year, but Bill English thinks the Government has the balance right.
Over the full four years of the Budget outlook Treasury is forecasting the Government will withdraw 0.6% of stimulus each year on average over the latter part of the forecast period. That's down from an average contraction of 0.7% in the Treasury's December forecast.
4. Talking tax cuts – Tax cuts are not forecast in the budget, but Bill English started talking about the potential for tax cuts, echoing teasing comments yesterday by Prime Minister John Key about the potential to use some of those discretionary spending pots of NZ$1.5 billion a year in 2015/16, 2016/17 and 2017/18 to fund some sort of tax cut, albeit it relatively small given the size of those fiscal envelopes.
5. A few builders offcuts – The Government is working to improve housing supply, particularly in Auckland. It unveiled a plan to temporarily remove tariffs on building materials, which it said would reduce the cost of building a standard home by NZ$3,500.
It also announced NZ$64.3 million of new operating funding and NZ$16.4 million of new capital funding for social housing needs assessment for the Ministry of Social Development. There would also be a NZ$30 million boost to the Social Housing Fund.
6. Some lollies for young kids – The Government announced a NZ$500 million package that includes a four week extension to Paid Parental Leave, an increase in the parental tax credit by NZ$70 a week and by two weeks to 10 weeks, and extra funding for Early Childcare Education.
7. Migration is an issue – One scenario painted by Treasury in its fiscal risks section was for a rise in net migration to 41,500, which it said would put extra pressure on prices, house prices and interest rates.
8. 4% growth – Treasury forecast GDP growth of 4% in the year to March 2015, up from 3% in the year to March just completed. It expects real private spending growth of 7% in the year ahead as high net migration, record high terms of trade, insurance payouts and strong asset prices fuel growth.
9. There's a limit – Bill English said Treasury had advised him the most new spending any government could manage in a year without pushing up interest rates was NZ$1.5 billion. That sets the parameter for the political debate about lolly scrambles vs higher interest rates.
10. Money for Auckland - The Budget included a NZ$375 million loan to the NZTA to kick start NZ$815 million of Auckland Transport projects to reduce congestion. This was a factor NZIER pointed to in an analysis about expensive housing.