Some treats in election-year Budget

04:15, May 15 2014

No tax cuts, but a rise in spending has commentators questioning the Government's claim that there would be no lolly scramble in the Budget.

New measures aimed specifically at families total almost $500 million, including tax credits, longer paid parental leave and free GP visits for primary age children.

This compared to just a few million in tax cuts by way of abolishing cheque duty.

David Farrar, who runs the generally National-friendly Kiwiblog, said there was no doubt the Budget contained election year treats, although relatively small ones.

"It's almost similar to the Australian Budget in a different way. The Australian Budget tried to spread the pain to everyone. This is trying to spread a wee bit of lollies to everyone. No one got a huge lolly ..."

Jordan Williams, executive director of the Taxpayers' Union, said the only tax cut in the Budget went to the 1 per cent of the population which still used cheques. He pointed at the forecasts of around $7.5 billion in surpluses over the next four years as being room for tax cuts.

"That is, by definition, over tax, and we're very much focused on making sure that's given back to New Zealanders who earned it, rather than being spent by politicians."

Despite promises of restraint, the Budget contained hundreds of millions in new initiatives.

"Clearly there is a lolly scramble," Williams said.

While Prime Minister John Key hinted at tax cuts being on the table in the lead-up to the election, one tax expert said the documents released today suggested that any material tax cuts were likely to be a full political term away.

Aaron Quintal, a tax partner at EY, said he was hoping for more of a signal as to when tax cuts would come, but it was clear that would be years away, and dependent on lowering debt.

He pointed to English's statement in the Fiscal Strategy report that should tax revenues come in "well ahead of forecast, the Government's main priority will be debt repayment until the core Crown net debt objective is met".

Quintal said this suggested tax cuts were four years away.

"It's clear that they [tax cuts] are  very dependent on getting debt to 20 per cent of GDP [gross domestic product] before we get tax cuts. So that's 2018/19, at the earliest, before we even start looking."

Cameron Bagrie, chief economist at ANZ welcomed some of the microeconomic reforms announced in the Budget, including housing measures and apprenticeships funding, as well as added spending on interventions for the vulnerable.

"You get the intervention right, you stop being the ambulance at the bottom of the cliff," Bagrie said.

He warned that there was less than he had hoped in terms of building a fiscal cushion against an economic downturn or natural disaster, with the forecasts showing that in four years there would still only be a "minute" surplus of 1.3 per cent of GDP.

"I would have liked to see the numbers baked in before you start raising your provision for further initiatives."

Bagrie said Treasury forecasts pointed to the New Zealand dollar staying strong for years to come.

"The sector that's probably the hard luck industry out of this is probably the old export sector," Bagrie said.

"Yes the Government can point to the fact that they're taking pressure off interest rates by running a tighter fiscal ship. But if you're really serious about raising national savings and taking a little bit of pressure off the currency, your fiscal policy levers [to achieve that are] running supersize-me fiscal surpluses ... but that's politically very difficult to do," Bagrie said.

Bill Rosenberg, economist at the Council of Trade Unions, said he was pleasantly surprised as measures such as free doctor visits for under-13s, but there was little in the Budget that would improve the major problems in New Zealand.

"This Budget fails to address very important needs in the economy and society. It only chips away at the edge of them, things like inequality, child poverty, climate change, the imbalances in the economy with the current account deficit really just are not addressed."