Archive | Budget

Published 20 May 2011

Main points in the Budget Finance Minister Bill English delivered yesterday:

Net debt to stay below 30% of gdpReturn to surplus in 2015Government to resume NZ Super contribution 2016$5.5 billion Canterbury recovery fund$5.2 billion public operating savings identified$4 billion redirected to new social initiativesGovernment to reduce ownership in 4 SOEs & Air NZSell-off worth $5-7 billion – alternative was to borrow

Finance Minister Bill English said of his third Budget, in his executive summary: “Budget 2011 marks the next step in this government’s programme to tilt the economy towards exports, savings & investment and away from borrowing & consumption. It continues the responsible approach we took in the last 2 Budgets to build a platform for faster growth, more jobs & higher incomes.”

Mr English said the aim was to lift national savings by returning to surplus sooner, increasing private savings in KiwiSaver and providing quality investment opportunities for New Zealanders: “These measures reduce the need for government borrowing and support jobs & growth by reducing pressure on interest rates. They will also put the public finances in a stronger position to cope with future shocks.

“With growth forecast to reach 4% next year and the economy forecast to create 170,000 new jobs over the next 4 years, it is appropriate to accelerate the Government’s return to surplus. The Budget achieves this while continuing to protect the most vulnerable New Zealanders, increasing investment in health & education and establishing a $5.5 billion recovery fund to help pay for rebuilding Christchurch.

Despite the additional costs of the Canterbury earthquakes, he said net debt would remain below 30% of gross domestic product and the national books would return to surplus in 2014-15, one year earlier than previously projected.

Mr English said the Government would resume contributions to the NZ Superannuation Fund in 2016-17, 2 years earlier than expected.

“To achieve this we have focused on getting better value from public spending. Budget 2011 identifies operating savings of $5.2 billion over 5 years. These savings are drawn from across the board. They include efficiency savings expected of most government agencies. They also include changes to KiwiSaver, Working for Families and student loans to make them financially sustainable & better targeted.

“Almost $4 billion of these savings is redirected to new initiatives – with most of it tightly focused on frontline services in health & education. The remaining savings will reduce the deficit.

“Budget 2011 continues to make better use of Crown capital. It contains significant infrastructure investment, including in ultra-fast broadband & KiwiRail. The Government will look to extend the mixed ownership model to 4 state-owned energy companies and reduce its majority shareholding in Air New Zealand.

“The proceeds are likely to be $5-7 billion, which will fund about a third of the Crown’s investment in social infrastructure over 4 years. The alternative would have been to borrow the funds.”

Link: Budget 2011

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Attribution: Budget, story written by Bob Dey for the Bob Dey Property Report.

Published 21 May 2010

Finance Minister Bill English & Revenue Minister Peter Dunne said in the Budget that changes to the tax treatment of investment property would increase fairness and help rebalance the economy towards productive investment.

Property tax measures include:

denying depreciation deductions for buildings, such as rental housing & office buildings, with an estimated useful life of 50 years or more. This takes effect for all such buildings from the start of the 2011-12 income yearchanges to the tax rules for qualifying companies (QCs) & loss-attributing qualifying companies (LAQCs), taking effect from income years starting on or after 1 April 2011preventing property investors from using rental losses to inflate Working for Families eligibility & payments, from 1 April 2011funding over the next 4 years for Inland Revenue to target property speculators who have been avoiding paying tax on their trading gainscutting the top personal tax rate from 38% to 33%, reducing the value of losses higher-income earners can claim on property investments.

Mr English said: "These changes will make the tax system fairer by ensuring the treatment of property is consistent with other forms of investment. This will reduce the incentive for people to buy property purely for tax reasons and will help tilt the economy towards saving, productive investment & exports.

"Closing loopholes that allow well-off families to use investment losses to inflate their eligibility for Working for Families payments will remove another incentive to invest in property.

"These changes will generate at least $2.48 billion additional revenue over the next 4 years, which can be returned to all New Zealand taxpayers as part of our package of across-the-board tax cuts."

Mr English said Treasury estimated the impact on rents would be slight, with rents rising about 1.4% more than they otherwise would have over the next 3-5 years.

Mr Dunne said the new rules would enhance consistency across the tax system: "Ending depreciation tax breaks on buildings makes sense. On average, New Zealand buildings actually increase, rather than decrease, in value over time.

"Changes to LAQCs and QCs to make them flow-through entities for tax purposes will reduce the opportunities for tax structuring.

"An extra $26.6 million funding over 4 years will enable Inland Revenue to continue its successful programme of increased property transaction audits & compliance activity. This will ensure people who trade in property comply with the law and pay tax on their trading gains."

Links:

Budget 2010 Budget feature links Budget tax guide

Related story:

Budget aims for faster growth

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Attribution: Government release, story written by Bob Dey for the Bob Dey Property Report.

Published 21 May 2010

Finance Minister Bill English said yesterday his 2010 Budget focuses squarely on faster growth, helping families get ahead and setting a credible path for getting back to surplus sooner. But even on this plan, a surplus is a long way off.

He said it also delivered the biggest reform of the New Zealand tax system in 25 years – much of it targeting property investment.

"Across-the-board personal tax cuts and a package of other tax changes will help boost economic growth, make the tax rules fairer and help hard-working Kiwis get ahead under their own steam. This tax package will leave someone on the average wage about $15/week better off and an average family about $25/week better off."

He said the Budget built on New Zealand’s economic recovery and tilted the economy “so faster growth & new jobs come from the right places. For too long, New Zealand has relied on investment property speculation, rising debt and increases in Government spending we could not afford.

"This budget takes action that will encourage investment in the productive parts of the economy such as exporting, and it gives the vast bulk of New Zealanders extra cash in their pockets so they have more choices."

The Budget also continued the Government’s multi-billion dollar investment in infrastructure such as ultra-fast broadband, roads, rail, schools & prisons, and made a substantial investment in research, science & technology.

Mr English said the Budget steps would return the Government to surplus 3 years sooner than forecast last year: "A year ago, forecasts showed we faced 9 years of deficits. This budget forecasts we will return to surplus in 2016. That’s good progress, but we will continue to work hard to get back into surplus more quickly.

"We still expect to borrow an average $240 million/week every week until 2013, before this amount falls away as we move closer to budget surplus. It’s important we continue to make considered decisions now so we can grow the economy faster and avoid having to make harsh decisions later.

"We expect to run an operating deficit of $8.6 billion in the coming year, and further deficits are forecast until 2016, when we return to surplus. As a result, net debt is forecast to rise sharply from 14.1% of gdp in the current year to a peak of 27.4% of gdp in 2015, and then falling."

Tax reform, investing in engines of growth

Those decisions include:

Personal taxes will be cut across the board from 1 October, gst will rise to 15% and NZ Superannuation, Working for Families & benefit payments will all increase.

Companies will be taxed at a rate of 28%, down from 30%, from the start of their financial year in 2011.

Tax rules will be tightened for investment property “to make the system fairer and to encourage productive investment & exports”.

The Budget 2010 provides $321 million over 4 years for new initiatives in research, science & technology.

Links:

Budget 2010 Budget feature links Budget tax guide

Related story:

The property tax changes

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Attribution: Government release, story written by Bob Dey for the Bob Dey Property Report.

Published 29 May 2009

New Zealand Institute researcher Chye-Ching Huang said last night the Budget wouldn’t be enough to springboard New Zealand out of the recession.

“Going into this Budget, New Zealand was not just facing a possible ratings downgrade due to the spectre of a Government debt explosion. Even before being hit by the global economic crisis, New Zealand was chronically underperforming in growth: New Zealand’s growth trajectory has been backward relative to other countries and, in 2008, Australia’s gdp/head was over 40% higher than New Zealand’s.

“The NZ Institute therefore called for the Government to use the Budget to do 2 things: get the public debt under control and start to invest behind growth. But the Budget went only halfway: primarily announcing across-the-board cost-cutting without fundamentally altering its priorities to invest behind growth.

“The Budget focused on austerity measures, including the (welcome) indefinite postponement of individual income tax cuts, that would have done little either to promote growth or deliver relief to families facing the most hardship. Note, however, that the Budget claims considerable but questionable ‘cost savings’ by promising to reduce operating spend increases in future years, but without providing detail as to how those savings will be achieved. Overall, the Budget’s cost-control measures will likely be enough to avoid an immediate downgrade to New Zealand’s credit rating.

“But like just one chopstick without its mate, avoiding a ratings downgrade was necessary – & welcome – but insufficient. To fuel New Zealand’s economic growth and make it stronger coming out of the recession than before, the Budget also needed to take bold measures to address New Zealand’s poor growth performance.

“But disappointingly, the flagship new ‘investments’ announced in the Budget – such as more money for roads & prisons and the home insulation scheme – will do little to attract to New Zealand the mobile businesses & talent that will be seeking new engines of growth when the world economy starts to recover.

“Why is the lack of a real growth strategy in this Budget so disappointing? Why can’t the Government wait until after the recession to address New Zealand’s underlying growth problem? There are 4 key reasons:

1.      Perhaps most importantly, the global recession is a small window of opportunity: bold steps now to improve New Zealand’s lacklustre growth performance could be particularly effective. The recession is a disruption in the established growth paths of countries, and disruptions like this create opportunities for laggards.  It is vital that New Zealand takes advantage of the world economic crash by investing behind areas of growth & infrastructure, in order to come out of it ahead of other countries. New Zealand has just 2 years to make those investments in order to be a magnet for mobile talent & business opportunities when the world economy is expected to be in recovery in 2011

2.      Saying “’later’ to improving growth easily becomes ‘never’. 18 years ago, a New Zealand trade & development report called for urgent action to lift New Zealand’s gdp/head to 10th in the OECD by 2010, by growing exports & international engagement. With just one year left to meet that target, New Zealand is ranked 22nd and slipping backwards

3.      Crises are not a good reason to procrastinate on improving growth. There will always be crises.  And the longer New Zealand continues along a limp growth path, the more susceptible it will be to economic shocks and the more frequent those shocks will become

4.      Doing across-the-board public-sector cost-cutting in the absence of any long-term growth strategy could harm growth prospects. Costs must be contained but, without the Government providing & leading a long-term growth strategy, departments may cut investments that are essential to New Zealand’s future economic growth prospects instead of cutting costs that are not.

“It is still possible for the Government to drive a growth strategy without waiting until the next Budget.  There is scope to use existing Government resources more effectively to support key objectives, such as a more strategic approach to supporting the innovation & international engagement of New Zealand businesses. But these measures need to be signalled & implemented urgently, as the ability for New Zealand to use the global recession as a springboard to emerge stronger than before is quickly slipping away.”

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Attribution: NZ Institute release, story written by Bob Dey for the Bob Dey Property Report.

Sparking new ideas — and acting on them

A segment of Budget announcements labelled “Enhancing economic transformation and growth” won some immediate criticism for inadequacy.

In some areas the money is still small, and inadequate for a complete solution. What I like about it, though, is that the framework to develop schemes is put in place.

In quick succession this week, I saw a school careers evening programme filled with imaginative study possibilities, a rejuvenated Rodney District Council discussing economic development for Auckland’s biggest rural area, and then the Government come out with ideas on transformation.

We’ve had plenty of ideas before, but no action. Daily, I see reports from around Asia, the US and Australia on the development of business parks based on ideas which we’ve had for several years — the knowledge economy, bioscience, information technology. Singapore is up to about stage 4 of one such business park, developing it as demand requires. Meanwhile, we sit on our hands and turn our industrial space into distribution warehousing.

Rodney will be worth watching as it develops an economic rationale, public and private sectors in concert, but with enough concerned councillors on board to ensure there is care for the environment.

It’s an example of getting up and doing. In Rodney, the new council doesn’t profess to have all the answers and isn’t about to spend a lot of money but wants to encourage new investment, with controls and frameworks in place.

The Government’s Budget proposals, too, seem more for support and framework for the private sector than for the Government itself to conduct business.

In brief, these are the Budget proposals:

$34.35 million package of initiatives for economic and regional development

$100 million seed capital investment fund in partnership with the private sector to help develop high-tech businesses, and $11.6 million increase in direct research funding

$1.2 million/year increase, to $1.8 million/year, for the business incubator support programme

$56 million more over four years to create 17,000 more industry training places

tertiary education commission to be set up to drive improvements in that sector

increased funding to continue tertiary student fees freeze next year, and $40.6 million over four years for a new centres of research excellence fund

$4.4 million over four years for the Industrial Supplies Office to seek tendering opportunities for large public sector projects here and in Australia.

Budget restarts progress from around 1985

A budget with a capital B used to be the occasion for a malevolent smack in the place you least suspected it would happen, by a government whose aim was to deprive you of something you cherished, called money.

In election year the same malevolent governors would smile at you, and give you more than you needed on budget night to encourage you to vote for Guess Who? The third-year largesse told you they’d failed to perform adequately in the first two years, for whatever reason.

Michael Cullen looked today like delivering a budget was his job, not a lolly he’d been given to suck on then have it stolen back. Later, on television, the presenters found all the whingers they could muster in an afternoon to say a dull budget was bad, and lined up an assembly of other parties’ leaders to bleat predictable opposition.

Two key words appeared in Mr Cullen’s 2001 Budget: “Four years.” This government was telling you its plan is for the term of the next government, too, and nobody was saying otherwise. No great moment in much of it, and Mr Cullen even went to the trouble to tell you not to expect too many lollies next year either.

Normally I elude the Budget announcement, knowing I’ll be entirely unimpressed by the hot air, the lies, the desire to stay in power above the desire to serve a country. This time I accepted an invitation to a pre-delivery lockup in Auckland’s town hall, courtesy of the mayor, Christine Fletcher, who was greatly aided in achieving this occasion by the Minister for Auckland, Judith Tizard.

When Ms Tizard’s father, Bob, was minister of various things, including science and technology in a Labour government briefly keen to advance the nation, he gave an enthusiastic budget-time address to an audience under a racecourse grandstand about how we needed to push the technological economy. Virtuous, but the backup didn’t come.

Of course everybody saw the fool’s gold of quick speculative profits in the 80s boom and forgot the need to build up skills and wealth with some composure. That Labour government also had in charge of its funds a dogmatic designer, Roger Douglas, who wanted to remove the fat and failure from the public service, and get the population striving forward on the merit of its strengths.

Mr Douglas had statistics which showed retraining wasted money. I believe the failure to provide retraining for the many people who lost their jobs in that era, who didn’t know where they were headed but knew they didn’t have the skills for a new work environment, was the greatest failure of that 1980s Labour government, which stripped rural areas of population and gave no heed to the idea of a whole nation.

This Budget picks up around the end of 1985 and tries to establish a solid base for growth. It recognises the farthest provinces — Northland, Gisborne, East Cape. It recognises the need for jobs, the need for education to create jobs, the need for savings to provide education, jobs and a healthy nation.

It also pulls the occasional stunt, such as the statement on community financing in Alliance leader, Deputy Prime Minister, Economic Development Minister and Industry & Regional Development Minister Jim Anderton’s patch of the programme: “$1.406 million for pilot programmes in Northland and in Rangitikei/Wanganui/Ruapehu. In Northland, the proposal is to work with others to seek to re-establish a credit union.”

One of the joys of 80s Labour was the destruction of the small-town post office and post office savings bank structure that had found its way, like electricity, into every nook and cranny of the country to make us all part of the whole. One of the joys of modern, bank-less Northland has been the creation, with difficulty, of replacement communal banking systems, determinedly and without government help.

So the 2001 Budget redresses some of our downtime, and most of that is in the Anderton realm — his 15-project economic opportunity package to help transform the economy, $34.4 million/year, “brain-gain initiatives” to invest in talented individuals.

Among these programmes is one which beautifully steals the Act-supported campaign to highlight the brain drain — the campaign of Kiwis driven overseas who advertised their vehement detestation of this dreadful leftist government. Three of these Anderton programmes are “to identify, network with and develop innovative New Zealanders, both within New Zealand and overseas.”

As this was being announced, NZ Herald journalists were walking off the job (and would have walked from the lockup if they’d been allowed out the door) in protest at unionised staff being offered a 1.5% wage rise while those who’d accepted the push to join the contracted labour force were offered 3%. In what one might have thought could be an industry of new-economy sense, the belligerence of old ways persists.

So although Mr Anderton’s economic opportunity package is a very welcome positive approach, he will still have to bypass plenty of dinosaur politics. Ironic.

Other Budget stories:

Treasury’s home page, with links to all the Budget material

Nation’s net debt heading for 18%

The Government projects that its operating surplus for the June 2001 year will be $641 million, and says spending is at the lowest level as a proportion of gross domestic product since 1977.

Other highlights of Treasurer and Finance Minister Michael Cullen’s Budget are:

Net debt should fall to 17.8% by the election next year, compared to 21.7% when the Government took office in October 1999

Economic & regional development will get a $34.35 million package

An extra $467 million will be provided over four years for education

$62 million will be spent over years implementing the review of sport, fitness & leisure

$20 million will be spent establishing centres of research excellence in tertiary institutions

$100 million will be committed in the next year to the NZ Venture Investment Fund “so more businesses can be set on the path to global success”

$1.4 billion will be added to the health budget over the next four years, including $84.4 million/year for elective surgery

$173 million more will be spent over four years on child, youth & family services

$166 million more will be spent on the police over four years

A new $46 million will be spent over four years on cultural and economic empowerment for Maori

A $600 million initial contribution will be made by the Government to the NZ Superannuation Fund.Other Budget stories:

Treasury’s home page, with links to all the Budget material