Finance Minister Bill English has defended today's modest Budget measure to trim the cost of new homes as one step in a larger programme to improve home affordability.

Bill English has delivered an election year Budget which includes a bigger than forecast surplus, free doctors' visits for 400,000 more children, big cuts to ACC levies and dangles the prospect of tax cuts in front of voters. Finance Minister Mr English said the Government's much vaunted return to surplus would be $372 million, still slender but well ahead of the wafer thin $86 million forecast six months ago thanks to a rosier economic outlook.

However he said the most significant feature for helping New Zealanders into their first home in today's Budget was the Government's focus on limiting spending to levels that would not drive up interest rates.

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The sole new home affordability policy today was the temporary suspension of tariffs and duties on building products which the Government said would reduce the cost of a standard new home by about $3500.


Mr English said the move was temporary due to technicalities of relevant legislation but the Government would ultimately like to make it permanent.

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He defended it as "another step yet a significant one" in what he said had been a three year programme which would run for a further five years, "to allow more New Zealanders into a housing market where they're shut out mainly by poor planning."

But Mr English said the biggest factor affecting home affordability was interest rates.

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"The best thing that Government can do is limiting its own spending to take pressure of those rates."

He warned a Labour Greens Government with less disciplined spending could push interest rates to over 10 per cent, which for those wanting to buy their first home, meant "their dream is dead".