Budget 2012 - business reaction

03:37, May 25 2012

Business reaction to Finance Minister Bill English's 2012 Budget:

Ernst & Young
New Zealand still collects far too much tax from its high income earners, one of Australasia's top tax experts says.

Rob McLeod, Oceania managing partner and CEO for accounting firm Ernst & Young, says the National government's 2012 Budget was light on tax strategy.

The removal of three minor tax credits, a clampdown on bach owners and more money for tax compliance was just ''playing around with the pennies'', he said.

New Zealand was too dependent on collecting tax from the top of its labour market.

The current government had done a lot of work in restructuring the tax system, particularly in terms of a shift from direct to indirect taxation with tax cuts and the increase in GST. The basic policy design was good in international terms and was better than Australia's.


But there was still work to be done around tax rates, McLeod said.

''That's the sacred cow that tends to be very difficult to go near politically.''

McLeod said it was a ''treading water Budget'', with no strategy in evidence.

The government needed to ''go a bit harder and faster'' on its spending. ''It is still stubbornly at 40 per cent of GDP, still too high for a small vulnerable country like New Zealand.''

And he believed the Finance Minister underestimated the risks to the New Zealand economy by saying the Chinese and Australian economies were in reasonable shape.

''These two economies are actually under a lot of pressure themselves.''

The commentary on China was getting darker, and sentiment in Australia was quite pessimistic, McLeod said.

Employers & Manufacturers Association
The government's Budget restraint on spending has been given the thumbs up by business lobby group, the Employers and Manufacturers Association.

"There's no way we can keep on borrowing the way we have been; Europe's troubles point to what would happen if we went down that track,'' said acting chief executive Bruce Goldsworthy.

By keeping in check its rising debt, the Government was giving business the head room to grow the economy, he said.

Particular Budget initiatives welcomed by the EMA include the setting up of the Future Investment Fund as a reservoir for revenues from the sales of state assets and the $385 million extra to be invested in research, science and innovation.

Council of Trade Unions
CTU economist Bill Rosenberg has said the Zero Budget runs the risk of sending us back into recession, given the danger signals in Europe and falling agricultural export prices.

"We've seen high GDP growth forecasts time and again, but they have never actually showed up. Instead we have seen unemployment exceeding forecasts, lasting longer and affecting more people.''

Rosenberg said the tax changes targeting smokers, school children and the family bach will only raise $289 million in 2012/13 and won't address the loss of revenue and inequalities caused by the 2010 tax cuts to high income earners and hike to GST.

"You can't have growth and austerity, it just doesn't work. With government debt still among the lowest in the OECD, it had room to move with real investment in job creation, economic growth and looking after those who are most vulnerable.''

Bank of New Zealand
Andrew Thorburn, chief executive of the Bank of New Zealand, gave the Budget two thumbs up and one thumb down.

It was a responsible and prudent Budget in difficult times, which gave the government's fiscal management skills credibility, he said. ''Investors and rating agencies will think that's positive.''

He also liked the setting up of the Future Investment Fund, into which the proceeds from the SOE sales will go for spending on schools, health, science and innovation.

''The principle that they don't just repay debt is good.''

But he was not thrilled about the decision to defer auto-enrolment of all workers into KiwiSaver. It had been planned for 2014/15, but the government now says it can't afford it.

''I sort of understand why they've done it but it's not a good signal,'' Thorburn said.

''I still think [savings] is one of the big looming issues for the country that has not been strategically addressed.''

Canterbury Chamber of Commerce
Canterbury Employers' Chamber of Commerce chief executive Peter Townsend said the 2012 Budget was conservative and prudent but he would have liked to have seen more emphasis on international trade.

Townsend said while it was pretty bland because much of the measures had been announced before hand, he was glad to see continued support and emphasis on the rebuild of Christchurch and Canterbury in Budget 2012.

The Government talked a lot about business growth agenda but there was not enough information and comment on that in the budget.

''The only way we are growing to grow scale and the only way we are going to grow wealthy is by our international trade agenda and I haven't seen a lot of this in the budget. But so far so good. Besides the $5.5 billion committed in last year's Budget for the Canterbury Earthquake Recovery Fund, the Government added another $115 million for the Canterbury Earthquake Recovery Authority and $13 million for the support of non-government and charitable organisations."

However the earthquake fund for Canterbury would be spent by the June 2015 year.

''I would be putting a caveat on that because that's as good as it goes, but we might have to revisit that is in the future because the cost of this earthquake has more than doubled since they put that money in.''

''Apart from that, it's good. It's a budget that lets us get on with it and it's a budget that is prudent and conservative."