Budget 2012 is a steady as she goes budget that relies on growth and a bit of tweaking to return to surplus, but doesn't shift NZ's growth track

By Bernard Hickey

The government is relying on growth from the Christchurch rebuild and continued strong growth in China and Australia to get the economy and the government’s finances back on track.

There are no major moves to shift the economy or the budget onto a new track. There are tweaks around the edges of the tax system and the big spending departments, but nothing major that would change New Zealand’s direction.

The government is essentially holding the line back to surplus by 2014/15, relying on some rosy Treasury forecasts to get it there.

It’s a tried and true technique for the government. It also relied last year on Treasury’s forecasts that the economy would bounce back to ‘normal’ growth rates of around 3-4% to bring the budget back to surplus.

That didn’t happen thanks to delays in the Christchurch rebuild and slower than expected economic growth.

So the government again rolled the Treasury’s forecast dice and added a few tweaks on the revenue and spending side. Its decision not to bring in auto-enrollment for KiwiSaver and nudge up the repayment rates for Student Loans saved a bit here. Little tax tweaks on boats, houses, maids and livestock added a bit there.

But it remains dependent on economic growth rebounding to ‘normal’.

What’s more likely is the Treasury’s downside scenario, given the slowdown evident in China and Europe in recent weeks.

That means the government would have to keep borrowing for longer.

If interest rates stay as low as they are now that presents few problems for the government.

But it doesn’t shift the economy to a new track.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Bernard, you seem to be implying that the govt should be able to work miracles and somehow return the economy back to surplus overnight. In what is probably the most difficult economic environment in atleast 30 years, what is it that you think the govt should be doing differently?

Experiencing the most difficult economic environment in 30 years is no excuse for not doing things differently, such as the changes advocated by NZMEA:

"In short, we really need is a mechanism to manage our exchange rate, an even more balanced tax system and incentives for productive investment,” says Mr Walley."
With respect to Mr Walley at the NZMEA, these are all easy things to say and very difficult to do without creating a massive political stink. There definitely needs to be a biparty approach to tax, otherwise the opportunity is there for either party to just appeal to populism should something like a land tax be mooted.
"and we need far stronger elaborate exports to support the performance in primary sector."
Again, how do we just conjure these exports into existance, bearing in mind everybody else is trying to export their way to prosperity at the same time.

difficult environment? This govt couldn't even get good growth last year when Australia was doing quite well, and China was doing very well. Key has always said we are decoupled from Europe and mainly aligned with Australia and Asia, so if so why didn't we have good growth last year, especially as interest rates were at record lows? Sure the ChCh earthquake didn't help, but ChCh is a fairly small component of the overall economy
Sure things are difficult now, but that doesn't explain NZ's poor economic performance for the last couple of years given the strength in our main trading partners. If we struggled when our main trading partners were strong, what does it mean now that they are weakening significantly??? 
what is it that you think the govt should be doing differently?
A very good start would have been to overhaul the planning system. One of the Nats key strategies when they won their first term was to do this, they have almost made no progress in the 4-5 years they have been in power - very poor. If they had sorted this out by now then the construction industry would be pumping again given the underlying demand that exists for housing, and that is very important for NZ's economy 

Sound like someone from Auckland :-) An example of the Christchurch effect is the amount it has effected the entire tourism industry within the South Island. It is more broader potential microeconomic effect than the 13% GDP of the area. The only reason Christchurch has not had a major effect on GDP is the amount of money wasted in the past twelve months  in what could be hardly called productive GDP expenditure there. Expenditure has tightened recently though.

For 30 years Treasury and a few neo liberal accolytes in both Labour and National have led New Zealand down a dead end road. What have we got for it. A share market and commercial property boom and bust from which the NZX never recovered, a collapse of the BNZ, DFC et al, a long recession through the 90's, a credit boom post 2001 and an accompaning residential and rural land bubble which nobody knows how will end, and a succession of Labour and National governments who are happy to be managers rather than leaders, leaving the NZ economy and society at the mercy of the "markets" because they're "rational" and "efficient" and hey if you're not really governing and leaving everything to the market, its not you're fault if it doesn't work out. "What could we do?" How bad do things have to get before these clowns say look at us, look at Europe, look at the US - the current economic ideology isn't working, we need to do something different. The financial system is out of control and too many New Zealanders are collateral damage. Lets be be bold and innovative, proactive not passive. There are plenty of alternatives, you just need an open mind. The staus quo just isn't going to cut it much longer.

Possibly not however they still have some Govt. insurance money to burn on economic activity even if it actually moves little forward. Then again they spent a lot last year trying to hold things up. I wonder how much MSD reinsurance money is left etc.

wtf above has summarised my general views well, so won't repeat them. Les Rudd, in pointing to the MEA response also is spot on. As the NZMEA notes, "the current account should be keeping us awake at night", but there has been no mention of it from Key or English. I imagine the NZMEA's default political allegiance would be National, so its ironic that they are clearly disappointed, and saying the same things as the Greens. A 6.7% current account deficit by 2015, I have read; without any attempt by Key or English to focus at all on the issue, looks like further self inflicted disaster
On Christchurch, I wish it well, and understand massive government investment in the place. I also can see that economic growth will certainly happen frankly on the backs of insurance companies. By definition that growth will be very much centred on Christchurch. 
If not managed well; in particular, if the insurance money inflows lift the exchange rate, then the rest of New Zealand including the cities and the country, will take an unnecessary step back. Yet another reason why capital and exchange rate management need to be central, and the objective of the RB to be reviewed.
As a last aside, is it only me that now sees Key's personal style to be offensive. Pathetic personal attack jokes took me back over 30 years to one of his well known predecessors? Just needs to perfect the dimple and the chuckle to go with it. No real attempt though to explain in first principles why they are doing what they are doing, or how that will work in any way.

Stephen L - the final paragraph adds little to the creditablity of your other comments. My suggestion is to stick to the facts rather than the asides that add nothing except deflect some of us from the validity or otherwise of your other comments.

Fair enough; am conscious that in hindsight by accusing him of dealing mainly in personal attacks, I was guilty of the same issue. Will try and restrain myself in future, and stick to the economics as I see them.

Thanks Stephen, hoped you'd take it positively as I  do enjoy reading your comments.