Today's Budget contains few real surprises - the widely anticipated cuts to KiwiSaver, Working for Families and Student Loans are all there. What is new is the Government for the first time detailing its plans to raise between $5 billion and $7 billion by partial privatisation of its four state owned energy companies and extending private ownership of Air New Zealand.
Starting next year, the Government wants to sell off stakes in Genesis Energy, Meridian, Mighty River Power and coal company Solid Energy. The exact proportion of private ownership has not been decided but the Government will retain a majority shareholding.
Its plans are to sell shares in the companies through a public offering, with New Zealanders "at the front of the queue". There is no mention of any foreign ownership restrictions.
The sales would happen over three to five years starting next year depending on market conditions.
"As we promised, we are now clearly setting out our policy to New Zealanders well before the election in November," Finance minister Bill English said.
"The Treasury estimates that extending the mixed ownership model to the four energy SOEs and reducing the Government's majority shareholding in Air New Zealand are likely to free up between $5b and $7b of capital -- depending on the final structure of the programme."
The move would help the Government reduce debt while also providing investment opportunities, he said. The Government expected to have to spend more acquiring assets by 2015 requiring $21b.
"Rather than simply borrow this amount, the Government will use proceeds from the mixed ownership model to recycle existing capital towards high priority future investment in assets like schools, hospitals and broadband.
"The proceeds will fund about a third of the Government's new investment in core social infrastructure."
Heading back into black
Mr English said today's budget set "a credible path back to surplus" by 2014/2015 and would help increase national savings. This return to surplus comes a year earlier than its most recent December projections.
Prime Minister John Key said the budget was responsible and balanced in tight economic times.
"We have taken decisions to better target spending to those most in need. This will ensure that schemes like Working for Families, KiwiSaver and interest-free student loans remain affordable and sustainable into the future."
New operating spending of around $4 billion was tightly focused on frontline health and education services, which received three quarters of total new spending. English said $5.2 billion of existing Government spending will be "reprioritised" to high priority frontline public services and deficit reduction.
Mr English is also forecasting economic growth of 4 per cent next year, with 170,000 new jobs created by 2015. The Government's annual operating deficit is $16.7 billion.
A $5.5 billion Christchurch Earthquake Recovery Fund is also included in today's budget. This will pay for new infrastructure and schools, temporary housing, trades training and CBD demolition costs.
Mr English said the budget meant national debt would reach a maximum level of 29.6 per cent of GDP.
That would have been two per cent lower without the bill for the Christchurch earthquake recovery, he said.
"The measures announced in this budget will put both the Government finances... on a much sounder footing.
"It has... instilled a culture built on savings rather than debt.
"This budget continues to build a platform for a stronger, more ambitious New Zealand."
Mr English said the budget would continue to protect vulnerable New Zealanders, even with cuts to three social programmes - KiwiSaver, Working for Families and the Student Loan scheme.
"Kiwisaver, Working for Families, student loans and ACC are all examples where cost escalation has occurred."
KiwiSaver annual tax credit cut by half
Cuts to the annual KiwiSaver tax credit, which matches member contributions and can be up to $1042 a year are confirmed, with the incentive being halved for the year ending June 30 2012 and beyond. From April 2013 the minimum worker contribution and compulsory employer contributions will rise from the current 2 per cent to 3 per cent. Many were expecting a complete removal of this incentive.
Cutting the tax credit will save Government $2.6 billion over four years and it says the scheme will keep growing strongly despite the changes.
Cuts to Working for Families entitlements
A four-stage winding back of the Working for Families tax credit scheme has been announced, with its abatement threshold dropping from $35,000 a year from the current $36,827. The so-called 'clawback rate' will rise from 20c in the dollar to 25c. These changes will begin in April next year and be completed six years later. Government says these changes will save it $448 million over four years.
Due to the changes, about 110,000 parents will have less money in their pockets next year, of which over 23,000 earn less than $60,000 combined annual income.
Student Loan Scheme changes
Widely anticipated changes in the Student Loan Scheme were also detailed in today's Budget, with nearly $450m expected to be saved over five years. Those owing from previous student loans and in default for more than a year will not be able to borrow more, those aged over 55 will not be able to borrow for living expenses and part-time, full-year students will not be able to borrow for course related costs.
The "repayment holiday" for borrowers based overseas will be cut from three years to one year. People will have to apply for a repayment holiday and nominate a local contact person before going overseas.
No more tax evading
The Government has also revealed that it will take a harder line of tax evasion, with revenue minister Peter Dunne saying $119.3 million would be invested into stopping tax evasion in the next four years.
Audits would target the property sector along with seasonal workers and the hospitality industry, he said.
He claimed the investment would be paid back within a year, and would eventually save the Government $5.74 for every $1 invested.
"In these difficult times, anything short of full compliance with tax obligations is effectively stealing from the honest New Zealand taxpayers paying their due. I am committed to following up on tax evaders."
But the budget has already been heavily criticised by the opposition, with Labour leader Phil Goff saying it was the worst he had seen in 27 years in Parliament and calling for the house to express no confidence in the Government in its wake.
It left New Zealand with a record $16.7 billion deficit and did nothing to address the problems facing the country, he said.
"Today New Zealand needed a budget that gave it a shot in the arm. It needed a vision for a better future and how to get there. We got neither.
"This is the worst budget that I have seen in 27 years in this house. It's the least imaginative and the most lacklustre
"This isn't a zero budget, it's a sub zero budget. It's frozen New Zealand in time. It seeks to balance the books on the back of broken promises and on the flogging off of $7 billion worth of assets.
"It's a budget that hurts, but it doesn't help."
Mr Goff said the budget did little to cut New Zealand's overall public and private debt level - which he claimed would only drop from 86 to 85 per cent of GDP by 2014/15.
The deficit could not be blamed on the global financial crisis as it was over by 2009, he said.