Thomas Pippos: Familiarity yet to breed contempt

Budget lays foundation for buoyant election-year plan.

In any relationship, familiarity can breed contempt if the needs of either party fail to be addressed.

Not yet so with Budget 2016.

It is the eighth consecutive Budget of Finance Minister Bill English, a year before he will deliver an election-year Budget as the Government seeks an elusive fourth consecutive term. If successful, it will surpass the tenure of Helen Clark's three-term Labour-led Government. Those successive periods mark a period of remarkable political stability for New Zealand.

It's a considerably more stable environment than many, including Australia, which during our current Government's tenure has had four different Treasurers and five Prime Ministers (one twice).

And NZ's Government has had to navigate through the global financial crisis and the eye-watering costs of the Christchurch earthquakes; it has now cost the taxpayer more than $17 billion. More recently NZ has also seen the freefall of some of its most important commodity prices.

Despite all that, Budget 2016 offers a pattern of growing surpluses in the mid-term (up to $5 billion by 2019), a plan to reduce debt and relatively moderate headline tax rates that may be eased even further.

Very different from the position of many of our trading partners. But the difficulty of what lies ahead cannot be underestimated.

As Deloitte's recently released State of the State New Zealand 2016 publication brought out, irrespective of who is in power and largely due to an ageing population, the long-term outlook is far from rosy. If the current pattern of revenue and spending continues, net debt could rise to more than 200 per cent of GDP from today's 25 per cent or so over the next four decades. The Budget's nearer-term outlook looks rosier, with net debt tipped to fall to 19.3 per cent in 2021.

The long-term prognosis is not new or disputed. It echoes a sentiment English has long articulated around the quality of government spending rather than the quantity, and the focus on the incremental spending rather than the aggregate amount already spent. Budget 2016 does nothing to dispel that phenomenon.

An example of spending quality is the Budget's earmarking of an extra $652 million as a social investment package that continues to focus on those most in need, looking at the root cause of some of the challenges.

Such a long-term view does not sit easily with a political cycle or environment that places a huge emphasis on the "here and now".

Publicly dominating the here and now is Auckland, a world leader (in a negative sense) in terms of urban sprawl and housing affordability.

Yet Auckland property did not take centre stage in this Budget. A further $100 million is to free up Crown land with very little extra said on what is a daily issue - demand will continue to outstrip supply for the foreseeable future.

Not mentioned was the question of demand, and what the Government can further do to dampen it.

Budget 2016 does, however, allot $94.4 million of new funding over the next four years for direct regional economic development activities.

But for now, Budget 2016 is a long way from breeding contempt. It projects a state of positive balance in the near term, underplays the projected surpluses, and provides no structural change in direction.

Positively there is also nothing precipitous to address any concerns attributable to the Panama Papers or the taxation of multinationals.

It continues to starve others of the political oxygen needed to thrive while leaving some long-term challenges largely unanswered.

But it lays a base for a buoyant election-year Budget or potentially more realistically post-election spending for whoever is in Government. It's a blank canvas that will be painted quite differently depending who holds the brush.

Thomas Pippos is the chief executive of Deloitte in New Zealand

- NZ Herald

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