Has Santa left the best surprise or two?

VERNON SMALL
Last updated 08:39 24/05/2012

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There is already a Boxing Day look about this so-called austerity Budget.

Old string is discarded on the floor, the coloured paper is ripped and in the bin, and there are only a handful of presents still under the tree waiting for out-of-town rellies.

When the wraps come off those today, expect to find a few that you will have to pay for yourself; a rise in the price of fags, the end of some tax breaks for the family bach, changes to the cost of early childhood education over time and some other user-pays measures.

Prime Minister John Key has also talked archly of a secret "base-broadening" tax measure, but it is unlikely to be big. Already out of the bag are faster repayments of student loans, tighter access to allowances, bigger class sizes and a rise in the cost of prescription meds.

On the bright side, there have already been announcements about "extra" spending in health and education.

Expect a big push on science and technology education and some infrastructure projects; specifics of the Christchurch rebuild are also in the pipeline.

Had the needs of spin-control not dictated the early release of the bad news, the headlines today would have been full of Bill English socking students, smokers and the sick.

But with those well-signalled, the Government will surely have saved at least one big positive surprise for Budget day.

So what would qualify?

Not the forecast surplus in 2014-15.

That is so well-known it has become an old friend, although a significant number – say, more than $1.5 billion – could be worth crowing about.

What about a surplus – a very slim one – a year earlier in 2013-14? Or at the worst a wafer-thin deficit?

Mr English yesterday did not address the question directly, but emphasised as much focus would go on income as on spending.

Mr Key was playing coy about it on Monday too, hinting that the outcomes leading up to 2014-15 could be one of the (happy?) surprises.

He has long harboured an ambition to achieve the surplus one year earlier.

Yet, his hopes have so far been thwarted by weak growth, further Christchurch aftershocks and the rumbling debt crisis in Europe.

But even looking back to the forecasts in the pre-election economic and fiscal update, a surplus in 2013-14 would not be a huge hurdle.

It foresaw a $943m deficit in 2013-14 followed by a surplus of $1.4b in 2014-15.

It is likely the Government's (successful) measures to revive the latter surplus will have lifted the outlook for the next two years too.

For instance, cutting the $800m earmarked for new spending this year reverberates through the forecasts.

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A move to lower the new spending provision of $800m next year, rising to $1.2b after that, could compound the improvement in the fiscal outlook.

Treasury's growth forecasting models could also contribute.

They tend to shift things around the forecast years so less growth now often means more growth later.

The other unknown is rebuilding Christchurch. A start on significant building work has been repeatedly delayed, with the December aftershock adding three to six months to a start on some projects.

But it should get under way in earnest next year, boosting jobs and hence government revenue.

Looking at the big picture, there are added incentives to bring in the surplus a year sooner than expected.

Australia achieved it this year and Labour has never been more ambitious for a surplus than 2014-15.

In addition, Mr English says the Budget is all about "confidence in uncertain times" and showing the Government can get its own books in order. An earlier-than-expected surplus would make the point with bells on.

Of course, the Government's plum sales job could all turn to custard if Europe melts down and all eyes turn to Treasury's "downside scenario" – which will inevitably see a delay in any return to the black.

It is worth noting that in the pre-election update, the downside scenario wiped a cumulative $14.5b off tax revenue by the end of 2016.

Mr Key was keen to steer attention away from that option on Monday, arguing that a significant amount of bad news from Europe was already built into Treasury's main scenario.

So will it be an austerity Budget?

By New Zealand's historical standards, yes.

By definition there is nothing very extravagant about a zero new spending Budget, especially one that has reclassified some of the old automatic and inflation-driven cost increases under the "new spending" umbrella.

By recent European standards, not by a Southland country mile.

- © Fairfax NZ News

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