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Home / Business

Norman Gemmell: Return to surplus the imperative behind most decisions

By Norman Gemmell
NZ Herald·
24 May, 2012 05:30 PM2 mins to read

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Finance Minister Bill English. Photo / Mark Mitchell

Finance Minister Bill English. Photo / Mark Mitchell

Opinion

Yesterday's Budget from Bill English was his fourth.

English can certainly be credited with establishing clear objectives for those first three Budgets. Each had a theme - they were: recovery, tax, savings.

So what theme sums up this week's Budget? Asset sales? Welfare reform? Spending squeeze?

All of those things made it in, and more: student allowances, science research initiatives, closing tax loopholes.

Read all of nzherald.co.nz's Budget coverage here.

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Had it not been for all the prior announcements, maybe "cut back on boffins" would have been this year's Budget headline.

So what was English trying to do this time? By his first Budget in 2009, the global recession was well under way but English essentially kept up government spending and delivered tax cuts. The modest fiscal stimulus was designed to hold the floodgates steady and be ready for a deeper recession if it came.

By 2010, those recession worries were abating and the minister seemed keen to tackle the major tax reform his Tax Working Group had advocated strongly.

Classic Budget giveaway it was not. Just as well. 2010 turned out to be another year of gloomy forecasts.

Then came the Canterbury earthquakes. Suddenly more spending was required. But the Government was looking over its shoulders at what would happen to our credit rating.

Discover more

Economy

Graphic: Where Budget 2012 money goes

24 May 02:00 AM
Economy

Budget 2012: The main points

24 May 02:00 AM
Economy

Budget 2012: KiwiSavers set to get more info

24 May 03:37 AM
Economy

Budget 2012: 'No growth behind tax agenda'

24 May 05:30 PM

So the 2011 Budget focused firmly on raising New Zealanders' savings and cutting borrowing.

Which brings us to 2012. With Europe again in turmoil and commodity prices weakening, English faced another Budget where what he would like to do and what he was able to were very different.

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So it's no surprise he announced unprecedented limits on public spending.

Getting the government accounts back into surplus, revenues bigger than spending, by 2014/15 is the imperative behind most 2012 Budget decisions.

Despite a real possibility this target won't be met, there can be no doubt that this is what is driving English's fourth Budget.

Persuading his Cabinet colleagues that this is the right thing can't have been easy. Persuading us voters may be still harder.

Professor Norman Gemmell holds the chair in public finance at the Victoria Business School, Victoria University of Wellington.

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