Budget 2009: House goes into urgency

The Government moved immediately tonight to pass legislation scrapping tax cuts after announcing in the Budget today that the planned cuts had been dropped.

Finance Minister Bill English said the planned cuts for 2010 and 2011 were unaffordable.

Parliament adjourned debate on the Budget and put the House into urgency to debate the Taxation (Budget Tax Measures) Bill which, as well repealing the cuts, closes the mortgage diversion facility of KiwiSaver.

Mr English's first budget dragged down long term debt forecasts through a mix of axing planned tax cuts, suspending payments to the New Zealand Superannuation Fund and reducing long term spending increases.

But Labour's leader Phil Goff said there was no plan to protect jobs, no substance and no vision.

"This is a dishonest budget," he said.

"Tax cuts, personally guaranteed by Prime Minister John Key, have gone.

"And the biggest dishonesty is to talk about a commitment to superannuation because there won't be any money to pay for it - they've taken away the certainty New Zealanders rely on."

Mr Goff said 1250 people lost their jobs last week and the Government had no idea how to help them.

Instead, the Budget had been designed to placate and grovel to the international rating agencies, he said.

But Prime Minister John Key responded that Labour "just want to spend money - they're a credit card opposition," he said.

"And they're scaremongering, that's the worst kind of opposition.''

Meanwhile Corrections Association president association Beven Hanlon said double bunking 1000 or more prisoners "scares the crap" out of the union and has warned more officers will move to Australia.

Today's budget documents said double bunking would start next year at the Northland, Auckland women's, Spring Hill (North Waikato), Otago and Mt Eden prisons.

CREDIT RATING LIFTED

Meanwhile International credit rating agency Standard and Poor's has cast a favourable verdict on today's Budget, upgrading New Zealand's outlook from negative to stable.

The Government had been worried that if S&P had cut New Zealand's credit rating it would mean an increase in interest rates for them and everyone.

S&P said today that the budget delivered a ''sound'' outlook.

''The change in the outlook on the foreign currency rating reflects our view that the measures announced in today's budget will support stabilisation in the government's fiscal position over the  medium term,'' S&P credit analyst Kyran Curry said.

Moody's Investors Service maintained a stable outlook on New Zealand's sovereign ratings after the release of the budget.

Today's Budget also revealed that automatic payments to New Zealand's Superannuation Fund will be suspended for a decade, as the Government reins in a debt track that would have seen every Kiwi owe $45,000 by 2023.

Mr English said the moves - as well as limiting new spending in the next four years and redirecting $2 billion of "less effective spending" - were required to prevent debt levels rising from 20 per cent to 70 per cent of gdp by 2023 while maintaining services and entitlements.

Instead, the Government was on track for debt to peak at 43 per cent in 2017 and settle at 37 per cent in 2023. Controlling debt was a major focus of the Budget after Standard & Poor's warned it could downgrade New Zealand's credit rating, meaning higher borrowing costs.

"By taking firm, early and decisive action, the Government is managing the downturn to cushion the immediate impact on New Zealanders and to enhance future growth," Mr English said in his Budget speech.

"The Government is determined that the economy will make the adjustments it needs and emerge in better shape once the recession ends."

LITTLE FOR THE AVERAGE PUNTER

Mr English has previously said the Government was considering suspending payments to the Superannuation Fund this year, but the details announced today went much further than signalled.

In a Budget which holds little for the average punter - and with all the big spending items already announced - the decision to suspend payments to the fund for more than a decade is set to dominate headlines.

It also raises questions about the future of the fund, which was set up in 2001 to pay a portion of future superannuation costs, and could have implications for the retirement age and pension levels.

Mr English said the Government remained committed to superannuation at two thirds of the average wage at the age of 65, but was not prepared to borrow to make automatic contributions to the fund.

"When it was set up, the idea of the Super Fund was to invest Budget surpluses. Those Budget surpluses have disappeared. It makes little economic sense to burden future generations with debt incurred financing investments that were intended to reduce their need to borrow."

He said $250 million would be paid in next year to help meet an election pledge that the fund invest 40 per cent of its holdings in New Zealand and "partial payments" could be made in other years. But automatic payments would not resume till the Government returned to sustained surpluses, not expected till 2020.

Suspending automatic payments means the fund will be smaller than expected and push out the date on which the Government draws down from it by three years to 2030. It will also cover a lower portion of future superannuation payments, meaning more will have to be made up from taxation if entitlements are to remain the same.

The Government was to have paid in $1.5 billion this year and an average of $2.2 billion each year after.

HOME INSULATION FUND LEADS SPENDING PACKAGES

Spending highlights of the Budget include $323.3 million over four years for a programme to insulate and heat an extra 180,000 homes and $523 million to build new schools and modify existing ones.

The schemes are likely to help create jobs as the recession bites. Mr English said the latest forecast was for unemployment to hit 8 per cent by the last quarter of next year.

The Budget also includes a $900 million package of justice sector initiatives over the next four years, including more than $180 million for 600 extra police and $255 million for 246 extra probation officers and other Corrections staff.

More than $385 million has been set aside to provide space for 1000 extra inmates at five prisons through double-bunking.

Total new government spending has been limited to $1.45 billion next year and $1.1 billion the year after. It will grow by just 2 per cent in future years.

OTHER REACTION:

The Council of Trade Unions (CTU) also said today's Budget did not do enough to stimulate the jobs market and invest in skills.

"This was always going to be a tough budget requiring difficult choices. But the Government could have done more in the short run to boost employment and has actually reduced planned funding on industry training," said CTU secretary Peter Conway.

Mr Conway said the home insulation programme could have been scaled up and combined with other job creation schemes to really assist the growing numbers of unemployed.

But Business NZ Chief Executive Phil O'Reilly says the Budget is realistic in the context of the times, while making initial and necessary steps towards increased productivity and growth.

"Taking the top off New Zealand's accelerating debt, while still targeting spending in key areas like infrastructure is a prudent approach.

"Delaying the promised tax cuts is obviously disappointing but business will take heart from the fact that they have been postponed not cancelled."

Corrections: Double bunking of 1000 more prisoners "scares the crap" out of the prison officers' union and will see more officers move to Australia, it says.

Prison officers argue it will make their jobs dangerous by increasing prisoner unrest.

Today's budget documents said double bunking would start next year at the Northland, Auckland women's, Spring Hill (North Waikato), Otago and Mt Eden prisons.

It would add nearly 1000 beds at those prisons, to a prison system that now has a capacity of about 9500.

''It scares the crap out of us. It's not double bunking, it's overcrowding of the prison system,'' said Beven Hanlon, president of the Corrections Association New Zealand, which represents about 3000 prison staff.

Prisons weren't safe for corrections staff now, he said.

Mr Hanlon said it was ''most definite'' that some officers would opt to go and work in Australian prisons, where they could earn more money and they would be safer.

The budget had allocated more funding for more frontline prison staff but that was always going to be needed, he said.

Funding of $385.4 million over the next four years would help cope with forecast increases in the prison population, Corrections Minister Judith Collins said.

Some $218.6m in operational funding over four years, and $145.8m in capital funding from 2009-2011 would address the ''immediate need for prison accommodation'', she said.

Education: Students, universities and other training institutions say lack of spending on tertiary education will lead to less opportunity for study, academics leaving for better money overseas and leave the country less able to respond in an economic recovery.

They have voiced concern the Government hasn't followed Australia's example of increasing tertiary education funding.

The Government's budget today allocated a total of $2.78 billion in 2009/10, up from  a 2008/09 baseline of $2.66b.

Tertiary students themselves said they were disappointed the main funding categories in tertiary education will not be guaranteed to increase in real terms over the coming few years and that $98 million dollars worth of scholarships will be slashed.

The increased spending in the tertiary education budget for 2010 was below predicted inflation levels and was effectively a cut, said Jordan King, co-president of New Zealand Union of Students' Associations.

Less funding meant fewer people able to access tertiary education.

''The last thing we need is to emerge from this recession with an even less skilled workforce,'' he said.

Science: One of the nation's highest-profile scientists, Paul Callaghan, of Victoria University, says today's budget was ''extremely disappointing'' for science and technology.

Professor Callaghan, the Alan MacDiarmid Professor of Physical Sciences, said that  overall investment in research and development had been increased by a mere $28 million, ''even if we ignore the loss of the research and development tax credit and Fast Forward''.

The National Government ditched a 15c in the dollar research and development tax credit  and scrapped Labour's promised Fast Forward Fund aimed at promoting research to help food and farming. Fast Forward would have invested $700 million with matching contributions from industries to create a $2 billion fund over 10 to 15 years.

The Government has given an extra $40 million over four years to a "capability fund" for state science companies,  $36m over four years to the ''blue skies research'' Marsden Fund, $32m over four years for health research,  $4m over four years for prizes in a Prime Minister's Science competition, and a  $16m capital injection in 2011 for a high-speed internet link used by researchers.

 

- By MARTIN KAY with NZPA

- © Fairfax NZ News