Next week's Budget will be weighted more heavily towards social investment than new business policies, predicts Employers and Manufacturers Association chief executive Kim Campbell.

The business community understands that, he says.

Campbell recalls a pre-Budget speech Prime Minister Bill English gave to the EMA this month.

"He spent 40 minutes talking about social welfare basically and the business audience didn't blink. If it was anywhere else in the world they'd be gone," he says.


Campbell believes the thing that kept the audience focused was the fact that $47 billion is being spent on health, education and welfare.

"What everybody has recognised is that if we're going to spend it, we might as well spend it well. We can either give it away or invest in ways that give us a better return later."

The business community is comfortable with the idea that "there are social ills that we have an obligation to deal with," he says. "But OK, let's try and do it in a way that gives those affected some hope for the future."

Finance Minister Steven Joyce, in the throes of prepping his first Budget, is playing his cards close to his chest. But he doesn't disagree.

"I think that's fair. Social investment and investing in public services will be a focus."
Not that business will be missing out altogether.

Pre-Budget announcements have already detailed some of that spending, including more for trade negotiations, tourism infrastructure and the movies.

The film industry is in line to get another $303.9m, most of it to continue the work of the International Screen Production grant, which has attracted overseas film-makers to New Zealand to make blockbusters such as Avatar.

The Budget will also allocate another 63.9m for local movie-makers.
But when it comes to business oriented spending, both Campbell and Joyce start the conversation with infrastructure.

"The infrastructure spend will be significant," says Joyce "And as well as the new budget spend, there's the sheer size of what we are doing at the moment."

The Government has lifted its commitment on infrastructure spending to $11b across the next four years, including $812 million needed to sort out the damage last year's quake did to State Highway 1 around Kaikoura.

Don't expect to see the full $11b allocated on Thursday, Joyce says. "But we will lay out a bit more detail about the overall infrastructure plan."

He has previously indicated that we'll see $4 billion - including the Kaikoura money - in this budget. So that suggests some $3.2 billion could be allocated to fast-track key infrastructure projects.

It's enough for at least two heavyweight projects or several smaller builds.
Campbell and the EMA have been fierce advocates for a dramatic acceleration in construction, so he's reserving judgment until he sees the detail.

"My comment on that is: yes, it's great we'll have more but how much of that $11b is going to be smoke and mirrors," he says.

"Business wants to see the dots connected and a much more serious commitment to revising the Local Government Act and the Resource Management Act, because central government isn't the only one invested in fixing infrastructure."

The other perennial on the business wish list is lower taxes.

Business NZ chief executive Kirk Hope is calling for a reduction in the business tax rate from 28 to 20 per cent.

He argues that to maintain competitiveness, New Zealand's rate should be below those of our key trading partners - in particular Australia, which is reducing its rate from 30 per cent to 25 per cent.

What everybody has recognised is that if we're going to spend it, we might as well spend it well. We can either give it away or invest in ways that give us a better return later.


But while tax is one of the four key areas of focus that form the Government's fiscal strategy (the others are infrastructure, social investment and debt reduction) it's safe to say businesspeople shouldn't be holding their breath.

Joyce has teased the prospect of some movement on tax, but typically as the last of the four priorities.

If we do see any movement on Thursday, it is likely to involve tweaks on the personal income tax side.

"I have indicated my concern about bracket creep and how complicated the transfer system is with working for families and so on," Joyce says.

But it doesn't sound like we're in for any kind of big transformative change on tax.

In fact, Thursday's Budget will almost certainly seek to maintain the "steady as she goes" approach that English has delivered for the past eight years.

"The Minister of Finance's pre-Budget speech mentioned the word 'resilience' 10 times, giving a clear impression that the Government's mindset (even with some key changes in leadership) has not shifted from a prudent approach to spending," ANZ's economics team notes in their Budget preview, with a wry attention to detail.

Joyce says the fact that this is his first Budget as Finance Minister, and that this is an election year, shouldn't make that much difference.

"We've never really gone with election-year Budgets. And I don't see this one being any different," he says. "The public are ultimately a bit suspicious of election-year Budgets. Labour, in their last stint, did a very big Budget in 2008 and promptly got thrown out ... so from our perspective it will be steady as she goes."

Finance Minister Steven Joyce speaking to media at Parliament, Wellington. Photo / Mark Mitchell.
Finance Minister Steven Joyce speaking to media at Parliament, Wellington. Photo / Mark Mitchell.

He may have a different style to English, he concedes, but they've worked closely on Budgets for eight years, and still do.

"It's my first one but I've been Bill's sidekick for eight years. There will be a certain amount of consistency, people can play spot the difference if they like."

Deloitte NZ chief executive Thomas Pippos says the new combination of English and Joyce does make a difference. And the fact that we finally have a government with some money makes this Budget special.

The interest is less about the detail and more about the extent to which Joyce and English will use it to re-set the agenda and outline their political vision for New Zealand. Compared to other countries - such as Australia, the US and UK - Pippos says the Government is in the enviable position of having enough fiscal headroom to invest in any number of areas.

"We're talking about surpluses that in the next four years could be in the vicinity of $25 to $30 billion. At that level they've got an opportunity to touch everything in a meaningful way," he says.

There's no doubt the numbers Joyce has to play with are better than they have been for many years.

ANZ's preview notes that tax revenue has been running 1 per cent ahead of forecasts and is over 7 per cent above the same period last year.

"That growth in itself is saying something about the economy." So there is scope to spend. "But it's not just about election bribes," Pippos says. "It's about providing clarity in terms of what they stand for. Budgets are only a marker on a journey. They have an opportunity now to restate what the actual destination is."

We're talking about surpluses that in the next four years could be in the vicinity of $25 to $30 billion. At that level they've got an opportunity to touch everything in a meaningful way.


The EMA's Campbell says a big election year spend-up would not fit right with this Government's track record.

"When Muldoon was around and everyone sat around the radio, it was basically a lolly scramble," he recalls. "I think the day of pork barrel politics are over. Maybe I'm being naive. But I think it's become more subtle at least, because people know they're being bribed with their own money.

"So we would agree with the continuation with the fiscal restraint to keep that budget in balance."

But Campbell would like to see the Government doing more to boost productivity by encouraging more investment in R&D and technology. Joyce, unsurprisingly, argues that the Government is already getting real results after what he describes as "years of hand wringing" by previous governments.

He says R&D spending has lifted from 0.54 to 0.64 per cent of GDP in the past two years. That's a 29 per cent increase in spending - and 46 per cent by those businesses that have received grants.

And there's more coming. This Budget will allocate $74.6m more to meet demand for Callaghan Innovation R&D grants. But his broader response to calls to supercharge the economy by boosting R&D rapidly to 1 per cent of GDP is one of scepticism about the public sector's ability to drive the change.

"That rate of progress will steadily take us to the 1 per cent that New Zealand has never looked like achieving," he says.

He also offers some insight into his wider view of the Government's role in the economy.

"I think politicians often forget is that one of the most important things they need to do is provide a consistent investing environment. There's plenty of people wandering around saying 'Let's change the tax treatment on this and on that' and, yep, that's all possible.

But then it alters and slows down investment while people reconsider everything that they are doing," he says. "There's always the danger that politicians forget the impact of constant change."