Three-pronged stab at cooling home market
A looming housing bubble has spooked the Government into urgent action in the Budget to rein in prices and speed up new housing developments.
In an otherwise predictable Budget, the three-pronged stab at taking the steam out of the housing market includes Government intervention to boost land supply, new rules to control bank lending and wider eligibility for income-related rent subsidies.
As the law change was rushed into Parliament under urgency, Labour took a swipe at the Government riding roughshod over local government but backed the legislation through its first vote.
Finance Minister Bill English's fifth Budget yesterday showed that, relative to the rest of the world, New Zealand was doing well economically - but Mr English warned there were still risks.
Among them was the housing bubble, which had arrived faster than anyone expected, and could derail progress.
"If it's left to run its course we could see higher interest rates and a higher exchange rate than would otherwise be the case and a future threat to financial stability when the bubble bursts."
Other risks included out-of-control European debt and subdued consumer demand around the world, Mr English said. The kiwi was over-valued which kept down householders' costs but hit exporters.
The Budget showed the Government is still on track to post an election-year surplus - but it will be wafer thin, at just $75 million, and was only achievable thanks to a hike in petrol tax and by paring back new spending.
As signalled earlier in the week, subsidies available to state house tenants will be extended to those in non-government-owned social housing, but the sting in the tail is a push to move up to 3000 tenants out of state houses by 2017.
Mr English also announced a deal giving the Reserve Bank the power to slap controls on bank lending so it had other tools besides interest rates at its disposal to dampen the housing market.
The new powers include possible limits on low deposit mortgages.
That has sparked fears that first-home buyers in centres like Auckland will be locked out of the market altogether because of the hefty deposits required.
But Prime Minister John Key has signalled first-home buyers might be spared.
"There are different ways of applying that and sometimes there are carve outs."
The major sweetener in the Budget for businesses and households was a promise to cut ACC levies by $300m this year and $1 billion by 2015-16. That could provide a de facto tax cut for workers, and potentially a cut in motor vehicle registration levies. But details won't be decided till later this year.
Elsewhere, however, the Government continues to keep a tight rein on spending and after a succession of "zero Budgets" there is still no room for an election-year lolly scramble, with just $1b set aside next year.
It signals National's intention to fight the next election on its record of tight fiscal management and debt reduction.
The resumption of payments to the so-called Cullen superannuation fund has been pushed out again and the Government has made a big reduction in debt a condition of restarting contributions.
Politically, the biggest message from the Government yesterday was that it remained on track to get the books back in the black after inheriting a sea of red ink.
But Rob McLeod, of Ernst & Young, was among those who sounded caution about the wafer-thin surplus.
It assumed growth of 2.5 per cent to 3 per cent and growth forecasts beyond 12 months were "not much better than guess-work", Mr McLeod said.
In other measures, Mr English also confirmed the next partial asset sale, in October, would be power company Meridian Energy. The bulk of the proceeds from the first state-owned power company to go on the block, Mighty River Power, will go to the Christchurch rebuild.
A package of support for low-income earners will include more funding for budget advice, grants for beneficiaries to buy whiteware and a pilot scheme to provide low and no interest loans to low-income borrowers.
A response to recommendations in a report on child poverty, including support for food in schools programmes, will be made in future weeks.
FIVE KEY POINTS
Back in the black: After years in the red, the Government expects to post a paper-thin $75m surplus in election year.
Broken homes: About 3000 state house tenants face losing their homes as the Government turns to community agencies for help.
Border patrol: Student loan defaulters could be arrested at the border - and anyone aged over 40 who returns to uni faces limits on borrowing.
On the block: The worst-kept secret is out - cash cow Meridian Energy is the next asset up for sale in October.
Wait and see: No details yet, but ACC levies will drop by $300m next year and up to $1b further down the track. No personal tax cuts.