NZ Herald business editor at large

Liam Dann: What to expect from Budget 2016 - scraps

26 comments
Contrast between Finance Minister and PM has some questioning whether this is a political marketing job.

Expect to see Bill English deliver another fiscally conservative Budget this week. Despite the Prime Minister's tease of $3 billion in tax cuts sometime before the end of the decade, the Finance Minister has made it clear he wants to pay down debt.

In the short term he'll still be targeting, and may even achieve, a surplus this Thursday - albeit a slight one.

An unpromising first half of the financial year saw Treasury shift its forecast in December from a wafer thin $176 million surplus to a $401 million deficit for the year.

But the nine month accounts surprised on the upside, showing a surplus of $167 million to March 31 when a deficit of exactly the same amount had been expected.

English doesn't appear to have taken the improved balance sheet as a green light for increased spending though, despite pressure within his own team.

"Budget 2016 will reflect this government's continued commitment to responsible fiscal management," he said when the nine month accounts were released and he has stuck to that mantra.

If anything he has gone out of his way to remind people of his commitment to returning net crown debt to 20 per cent of GDP by 2020.

That figure is expected to peak around 26 per cent this year and so the reduction represents no small challenge.

But the contrast between the Finance Minister's stern "captain sensible" routine and the Prime Minister's generous promise of tax cuts to come has some questioning whether this is all part of a political marketing job.

"We do wonder whether some parts of the Budget are purposely being talked down - we wouldn't completely rule out seeing a few 'goodies'," ANZ chief economist Cameron Bagrie writes in his preview.

Ultimately though Bagrie emphasises that "respectability will be the key take-away" on Thursday.

English has "already stated that pressures associated with stronger population growth mean some new spending is being brought forward. Health and education are likely to get the lion's share of extra funding, whilst previously flagged tax cuts for 2017 have been dropped (for now at least), with a lower profile for capital spending." It's also likely, even expected now, that we'll see some sort of social spending initiatives around housing, given the hot political topic it has been this year.

A number of economists and some business leaders have questioned whether English is at risk of being overly conservative on debt given the historically low cost of borrowing and the benefit increased government spending could deliver on the monetary policy front. There is a case for investing now in infrastructure that might generate greater returns for the economy long term.

As ANZ's Bagrie writes: "We're not convinced debt repayment should have such an overarching priority at this juncture. Certainly it wouldn't hurt the Reserve Bank's cause to see a more stimulatory approach from Government spending in the next couple of years." Looser fiscal policy from the Government would boost inflation assisting the Reserve Bank in hitting its targets without having to cut interest rates - which risks further inflating the housing market.

Of course it may well be that a prudent Budget 2016 is designed to enable just that.

The Finance Minister will this week get his chance to show off the balanced books before his colleagues raid the coffers to stimulate the economy at what conveniently turns out to be the business end of the election cycle.

Take part in our poll

There are 3,556,000 taxpayers in New Zealand. The Government allocated spending of $74.9 billion in last year's Budget. Each taxpayer gets $21,062. If you were in charge of the Budget, how would you want your $21,062 spent?

Debate on this article is now closed.

- NZ Herald

Get the news delivered straight to your inbox

Receive the day’s news, sport and entertainment in our daily email newsletter

SIGN UP NOW
NZ Herald business editor at large

Liam Dann is business editor at large at the New Zealand Herald. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy. He hosts The Economy Hub video show every Thursday.

Read more by Liam Dann

Sort by
  • Oldest

© Copyright 2017, NZME. Publishing Limited

Assembled by: (static) on production apcf04 at 26 Apr 2017 16:33:48 Processing Time: 946ms