It's surplus by a thousand steps.

Finance Minister Bill English's Budget has kept good on his promise of a forecast surplus in three years, but in many small steps rather than a few bold ones.

Mr English described it as "probably the tightest Budget in the last 20 years".

Prime Minister John Key rejected the notion that the Government was obsessed with a return to surplus for its own sake.


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"Our commitment to surplus is not a single-minded goal," he said. "It's part of our wider programme to build a more productive and competitive economy."

Opposition parties panned the Budget as drab. Labour said it offered "zero hope" that it would boost the economy, the Greens said it was full of cuts that would hit middle New Zealand, and New Zealand First said it would do nothing to keep one more job.

Most of the contentious measures, such as increases in prescription charges, higher student loan repayments and large class sizes, were announced before yesterday.

The hardest hit from yesterday's announcements will be smokers, who will be paying $20.50 for a pack of 20 cigarettes within four years because of a progressive rise in tobacco excise - part of $1.4 billion forecast in new revenue.

Parents of pre-schoolers could be facing higher fees for childcare because of a freezing of Government subsidies, which are usually adjusted for inflation.

Unless a childcare centre absorbs all the cost rises, they will be passed on to parents.

One of the smaller Budget moves removes a tax credit on schoolchildren's incomes, supposedly to reduce compliance costs for the employers of youngsters with part-time jobs.


It is forecast to save the Government $14 million a year, but Labour has described it as "picking the pockets of paper boys".

One of the biggest challenges for the coming financial year will be the $1 billion to be saved from the public service, announced in last year's Budget.

Pensioners get an extra $3.7 million for off-peak public transport under the SuperGold card scheme.

The deficit in the current financial year is $8.4 billion, well below the $12 billion forecast in February. But, as expected, that was more to do with the timing of earthquake spending.

The deficit in the next year is forecast to be $7.8 billion, then $2 billion before a razor-thin surplus of $197 million in 2014-5, when a gross debt level of $88 billion is forecast to start falling.

But there is some flexibility, including adjustments to operating allowances of $800 million in the next Budget and $1.2 billion in the one after that.

Mr English said paying into the New Zealand Superannuation Fund would resume in 2017-18 once surpluses were established.

The return to surplus in 2014-15 was forecast in last year's Budget, although then it was forecast to be $1.2 billion.

But with lower growth and revenue than forecast, that has been much harder to achieve, especially with the books deteriorating by $1.2 billion since February.

According to Treasury forecasts, GDP growth will increase by 2.6 per cent and 3.4 per cent in the years ending next March and March 2014, then grow at about 3 per cent a year after that.

In a downside scenario, the Treasury also calculated that if events in Europe forced a serious slowdown in Asia, tax revenue would be down by $8 billion, and the surplus forecast would be missed.

Mr English urged people not to act as though a downturn was inevitable when what was happening in Europe was unpredictable.

"The approach we have taken over the last few Budgets is to focus on those things we can control."

It was all but a zero Budget. Total spending on new initiatives is $4.42 billion, of which $4.39 billion came from savings or new revenue moves, leaving only a $26.5 million gap.

One the main ways the Government was able to keep to its surplus deadline was by delaying the automatic enrolment of employees into KiwiSaver, which would have meant automatic Government payments.

Labour finance spokesman David Parker said this was a "short-sighted move" when lack of savings was one of the bigger problems facing New Zealand.