Government surplus on a knife-edge

07:34, May 16 2013
Budget 2013
Finance Minister Bill English delivering the 2013 Budget in Wellington.
Budget 2013
Ministers head into the Budget lock-up, lead by English.
Budget 2013
The Budget documents.
Budget 2013
The papers are pored over during the lock-up.
Budget 2013
Journalists reading the Budget papers.
Budget 2013
Prime Minister John Key leads the applause for Finance Minister Bill English.
Budget 2013
English and Key on the way to deliver the Budget in Parliament.

Finance Minister Bill English says we're the envy of the world, but the opposition has labelled his latest economic plan the "blackjack Budget".

Whatever you think, English's fifth Budget, delivered today, carries a kick with sweeping reforms targeting soaring house prices.

Elsewhere there are few surprises and the path to surplus remains on a knife edge.

Without cutting next year's spending the Government would have likely missed the mark for returning to surplus.

English has this afternoon unveiled the Budget which promised the Government would make a $75 million surplus in 2014/15.

"The Government's surplus is not dependent on the Mighty River Power shares sale," he said.


Rather it was due to improved tax revenues and supporting business growth and public sector efficiency.

He named Meridian Energy as the next state-owned company to be sold.

New spending in this budget was $900m, $100m higher than forecast.

In order to reduce government debt and achieve a surplus, spending in next year's Budget will be $1 billion, $200m less than previously signalled.

"We're quite happy with what is a relatively small surplus in 2014-15. Because the environment is under reasonable control ... we're not stretching to make that target," English said.

"We're on-track with reasonably robust tax revenue growth, good control of spending."

He denied it was the reduction in next year's spending that created the forecast surplus saying it was a "whole package of decisions".

The Government also pushed out resuming contributions to the Superannuation Fund by two years, until 2020-21.

English told Parliament after releasing the budget that the Government's books were "the envy of most developed countries".

Labour MPs called out "nice try" when English said the surplus was not because of the asset sales programme.

English said wages were growing, interest rates were at a 50-year low and cost of living increases had been "modest".

However there were risks in global conditions, the high dollar and the housing bubble.

English promised New Zealanders would be at the front of the queue for Meridian shares, just as they were for the recently floated Mighty River Power.

Prime Minister John Key said the books the Government had inherited projected no return to surplus. The deficit forecast for the coming year was $2 billion, compared to the $20b announced by the Australian Government on Tuesday.

Key said the IMF chief executive Christine Lagarde had commended the efforts of New Zealand to tackle its economic problems.


Labour leader David Shearer responded by calling English's effort a "blackjack budget", which split the country between winners and losers.

Shearer said the thousands of people he had met across the country could not understand why even though they were working hard they still felt as though they were failing.

It was welcome that the Government had "woken up" to the housing crisis, but there was nothing like its own KiwiBuild plan which would guarantee more affordable homes.

"More homes for their mates, but no more affordable homes," Shearer said.

The sale of Mighty River Power meant that 2.5 per cent of New Zealanders now owned half of the country's asset.

"This is a Government for the well-heeled and the well connected," Shearer said.

He said fewer jobs had been created than promised, unemployment was higher and wages had not risen at the speed which was promised.

Labour would bring down power prices for Kiwi families, Shearer said, as well as building 100,000 affordable homes.

Meanwhile, reducing the housing bubble and curbing rising poverty were key focuses of the Budget. 

New legislation will be introduced to tackle housing affordability by giving central government more control over the consenting process.

The bill was expected to be rushed into Parliament this week and have a shortened select committee hearing.

Government also agreed to a memorandum of understanding which allows the Reserve Bank Governor to put pressure on banks to crack down on excessive lending in the housing market.

A number of initiatives to help low-income families were announced including extending income-related rents to non-government housing and consideration of zero or no-interest loans.

A reduction in ACC levies was the only sweetener offered for middle New Zealand.

The Government committed to reducing ACC levies by 40 per cent, starting with $300m in 2014-15 and increasing to $1b in 2015-16.

It did not say whether cuts would be made in the business, employee, or vehicle registration accounts.

ACC Minister Judith Collins said ACC had been working to prioritise and make improvements.

"Already there is general consensus that the improved performance of the ACC scheme makes substantial levy reductions appropriate and sustainable. Therefore I am signalling a likely further reduction from 2015-16."

The Budget included $5.1b on new initiatives over the next four years - much of which is reprioritised.

It includes $100m a year for an internationally focused growth package, including $10m a year to attract international students and money for tourism and research, science and innovation.

About $1.5b of the money earned from the Mighty River Power part-float will go towards previously announced capital expenditure products including the rebuild of Christchurch hospitals, an irrigation scheme for farmers, KiwiRail's turnaround plans and school network upgrades.