Budget balances books - at a price

Prime Minister John Key applauds Finance Minister Bill English after reading the 2011 Budget. Photo / NZPA/Ross Setford

The Government has delivered a budget that will bring its books back into surplus by 2014/15 and the price will be paid by the public service, more than 100,000 parents in the Working for Families scheme, and KiwiSavers who are going to have to put more of their own money into their accounts.

Finance Minister Bill English's third budget also confirms the partial sale of state assets, a lower government stake in Air New Zealand and tighter criteria for student loans.

There is no new money in it, but he has managed to give health an extra $2.2 billion over the next four years and education $1.4b mainly through savings in other departments.

In Parliament today Mr English said that in four years the Government would stop borrowing and start repaying debt - a year earlier than forecast - despite a record $16.7b deficit at the end of this financial year.

But his budget was damned by the Labour Party as lacking courage, vision and any plan to fix a broken economy.

"National has delivered a budget that won't fix our dire economic situation but will hurt hard-working Kiwis struggling to get ahead," said Labour leader Phil Goff.

"What the country needed was bold and courageous action. What we've got from National is a long list of broken promises."

Business New Zealand's reaction was muted, with chief executive Phil O'Reilly describing the budget as "cautious and safe".

He said it rested heavily on Treasury's predictions for economic growth - 4 per cent next year - being realised, and there were no signposts for future reform other than the partial sale of four state-owned energy companies.

"More could have been done to produce structural change," Mr O'Reilly said.

"Given the importance of skills development...there is concern that the budget has produced no co-ordinated plan."

The public service will suffer from having to fund KiwiSaver for its employees from departmental budgets, which is going to cost $650 million over three years.

In addition, the 31 departments have to find savings of $330m.

Labour's finance spokesman, David Cunliffe, told NZPA a total $980m was going to have to be cut from baseline departmental budgets without any indication of the consequences.

"That is absolutely unheard of," he said. "Treasury would never in the past have allowed that."

KiwiSaver cuts are in line with predictions - the tax credit worth about $20 a week is being halved while employee and employer contributions increase from 2 per cent to 3 per cent.

"At present, KiwiSaver's contribution to national savings is ambiguous," Mr English said.

"It helps individuals to save for their retirement, but it means the Government is borrowing money, mostly from foreigners, to contribute to private savings.

"A better approach is to have New Zealanders actually saving for their future."

Mr Goff said the Government was undermining a successful savings scheme.

"I remember them saying the main focus of the budget would be to encourage savings -- they've gone in the wrong direction," he said.

Changes to Working for Families means about 110,000 parents will have less money in their pockets next year, and more than 23,000 of them earn less than $60,000.

The government says the $2.8b scheme is unsustainable in its current form, and the changes will save it $448m.

They will be introduced from April next year, spread over eight years.

Mr English said it was being better targeted toward lower-income families and most of them would get an increase. Families higher up the scale would receive less.

"In most cases, the impacts will be small," he said.

- NZPA