Budget 2014 reaction

May 16th, 2014 at 9:00 am by David Farrar

The Herald editorial:

The manages the election-year trick of appearing both fiscally responsible and socially generous. The provision of free medicine and visits to doctors for children under 13 is the main surprise. It is not restricted to families on lower incomes, it will be equally available to those who can easily afford to pay for their children’s medical needs. It is not the most efficient use of funds for health, which absorbs an ever increasing slice of the annual .

By contrast, a parental tax credit is to be increased by $70 a week and extended from eight to 10 weeks but it will be better restricted to low and middle income households. As expected, paid parental leave is to be extended from 14 weeks to 16 next year and 18 the year after. It will also become available to those in seasonal or casual employment or who have recently changed jobs.

Those are the main gifts in a Budget that reflects a good economic outlook. …

The Budget’s best feature is the value Bill English seems to be getting for little extra spending on public services. Departments know the results he wants and seem to be delivering them without complaint from providers or the public.

They have stopped demanding endless increases in funds and he shared the credit with them yesterday for his surplus.

The public sector have done well in providing more, with less.

The ODT editorial:

Budget 2014 was handed down yesterday without much fanfare.

We all knew it was coming, of course, and most believed the pre-Budget hype of a predicted surplus after six years of fiscal restraint.

Many hoped there would be some loosening of the purse strings. Finance Minister Bill English has largely delivered.

This was the Budget that National – right from the time of its re-election in 2011 – would have hoped it could produce leading into this year’s election.

Mr English has not swayed from his path of fiscal restraint. Sure, he has had to borrow heavily during the past six years, but not to the extent the country plunged into recession.

Now, the return to surplus gives options such as paying down debt.

The careful management of the country’s finances by Mr English, and his team of ministers, has helped ensure New Zealand has been mainly immune from the worst of the global decline affecting Europe, parts of Asia, the United States and, latterly, Australia.

Economic growth has been one of the highest in the OECD and, for once, all Treasury indicators are pointing in a positive direction.

Also some interesting comments from Bank economists.

Tony Alexander from BNZ noted:

The return to surplus is a very positive development which stands in contrast with many more years of deficits projected in Australia. Across the ditch taxes have been increased and spending slashed. In the NZ budget it looks like scope exists for some tax cuts down the track and spending has been increased by small amounts in a variety of areas.

In his e-mail newsletter he commented:

The government’s budget this afternoon contained no surprises with a return to surplus predicted for next year and a complete absence of the horror underway across the Tasman where chickens have well and truly come home to roost after years of fiscal laxity. The divergence in the annual budgets with spending slashed in Australia and tax rates rising, versus scope for tax cuts here in NZ down the track will reinforce the massive switch in Trans-Tasman migration flows underway. Before the end of this year it is likely that for the first time since 1991 there will be a net gain to our population from Trans-Tasman flows.

That will be incredible if that happens. Globally, migration is almost always from smaller cities to bigger cities. People migrate from Wanganui to Wellington. From Wellington to Auckland. From Auckland to Sydney. From Sydney to New York or London.

What you don’t generally get is people migrating from Melbourne and Sydney to the smaller Auckland.

The ANZ noted in a newsletter:

The broad policy agenda from today’s Budget hit all the right notes at the macro level. A return to surplus is now within sight and the Government remains focused on the same key priority areas, including managing finances, improving productivity, better public services, and rebuilding Christchurch.

  • The fiscal numbers look good. A return to surplus continues to be pencilled in for 2014/15 ($372m) and rising thereafter, although the projected surplus of 1.3% of GDP in 2018 is marginal and not much of a buffer. Net core crown debt is forecast to fall to 20% of GDP by 2020.
  • While fiscal responsibility rhetoric is strong, an improving fiscal position and better economy have shifted the strategic focus of policy to managing an expanding economy and choices relating to future surpluses.
  • The growth projections look reasonable,which give the fiscal projections a sense of realism.
  • The Budget hits all the usual high notes and we like the emphasis on building the economy’s capacity; and the collection of small initiatives which we view as critical if the current expansion is to endure. 

And also some comments from Alastair Thompson at Scoop:

Six years ago after Lehman Brothers hit the wall this Treasurer set his course. Today the first milestone has been delivered with a return to surplus.

And six years hence the second target is now in sight, a Govt. debt to GDP ratio under 20% by 2020.

Even two years ago in I was a little sceptical about the result being achieved in the time and manner Treasury was forecasting. Back then the Christchurch re-build was failing to thrive. Forecast wage (and income-tax take) growth seemed to be a over-egged. But on the other side of the equation Treasury was forecasting a veritable explosion in trade with China.

Two years later Christchurch’s rebuild is gathering steam, wage inflation was indeed over-stated but the forecast China trade boom delivered and then some. And NZ’s current account deficit problem, the one thing that everybody agreed was our achilles heel, has made a remarkable turnaround.

Looking through this year’s Budget Economic and Fiscal update it is hard to find anything to be concerned about. Whichever way you look at it NZ’s economic outlook is starting to look remarkedly benign.

That may depend on the election outcome!

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21 Responses to “Budget 2014 reaction”

  1. EAD (612 comments) says:

    Alistair Thompson says “NZ’s economic outlook is starting to look remarkedly benign”

    mmmmmm…..I hope Alistair remembers those words one year henceforth. The truth is that it is 2007/8 and we are Ireland – a small “structural” deficit, overinvestment in housing, high debt levels caused by artificially low interest rates and an incredibly distorted economy with many people living on government largesse.

    http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100027188/speculative-fever-is-back-to-2008-with-compound-interest/

    And when it all collapses again, as it must, we will once again be treated to the ‘Nobody could have seen it coming’ excuse or that it was “another failure of capitalism”.

    Whereas if one was versed even in the basics of Austrian economics, one can see this crash coming a mile off:
    “True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression” – Ludwig Von Mises

    http://mises.org/quotes.aspx?action=subject&subject=Business%20Cycles

    disclosure – I put a short position on the NZD, expiring on November 22nd

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  2. lazza (358 comments) says:

    To quote “Slim Dave” … “The public sector have done well in providing more, with less”.

    Errr … maybe make that …”Central” Government has?.

    Local Government continue to ignore their new LG Act S.10 “Purposes” … of “cost effective infrastructure-related expenditures”.

    Spend, Borrow and to hell with the ratepaayers … is their maxim.

    But then, if we just continue to elect financially illiterate, high rolling, grandstanding local pollies … ask yourself?

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  3. WineOh (552 comments) says:

    Stupid Stuff / Dom Post has the headline “Living Off the Future” implying that tax cuts will be made from future surpluses. Wait… what???? Living off the future is what we’ve been doing for the last 5 years of deficits you journalistic morons: paying more than our tax income by raising debt, to be repaid by future tax revenues. Now that we are returning to surplus its the complete opposite. How fu*king dumb do these guys think we are?

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  4. RRM (9,466 comments) says:

    The Key / English govt has correctly identified that NZ likes its state services, and a reduction in spending has to be done over a decade, not a year, or else the government instigating that will simply be voted out. Keep the lid on spending increases for long enough and the country will grow up around the state spending, and that’s effectively a reduction in spending, one that will stick. This budget is a great moment because it is the beginning of our confirmation of just how right their chosen course has been.

    Bill English was hopeless as National leader circa 1998 / 1999, maybe he never wanted to be PM? But that he stuck around through Brash’s shenanigans and then as right-hand man to Key shows his committment to the country’s interests, and probably says something about his character as well.

    He has been absolutely brilliant as Minister of Finance, has saved New Zealand from being in Australia’s or Greece’s shoes.

    He’s also had to save NZ from itself, from the wishes of the many many voters who think govt money grows on trees, and from the idiot children running certain fringe parties who would promise those voters everything they want for a taste of power.

    On his eventual retirement from politics, the man deserves the Knighthood at the very least.

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  5. Rightandleft (636 comments) says:

    A very smart budget once again. Labour will be wondering how on earth they can win now. The way they were attacking English for past borrowing shows their desperation. Would they have preferred he borrow nothing and use harsh austerity measures instead? Of course not. They would have borrowed far more and still would be now, and they know it.

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  6. wikiriwhis business (3,883 comments) says:

    The wealthy will take their children for free doctors visits with no conscience what so ever.

    These are the ones who aer benefitting from workers long hard days. I see workers on site at 6am. That means they up and around by at least 5am while the idle rich slumber on. Slavery in any man’s language

    National inherited a crown debt of ten billion. The banker has managed to swell that to $60b.

    We are being run into the ground whilst vested interests are supported by National voters

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  7. wikiriwhis business (3,883 comments) says:

    “He has been absolutely brilliant as Minister of Finance, has saved New Zealand from being in Australia’s or Greece’s shoes. ”

    Deputy Cullen was knighted because of his financial shrewdness. This is what Bill English was able to stand on.

    But National should win this year. With Collins still on front benches and Maurice Williamson automatically returned to front benches .

    all very predictable.

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  8. peterwn (3,163 comments) says:

    It seems crazy to have the budget debate immediately following the budget. In the old days, the budget was delivered on Thursday evening with post-budget legislation concerning tax and duty changes being taken under urgency immediately after (there were frequent budget ‘surprises’ then). The budget debate did not kick off until the following Tuesday evening (from memory). The Opposition had plenty of time to prepare relevant speeches.

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  9. RRM (9,466 comments) says:

    National inherited a crown debt of ten billion. The banker has managed to swell that to $60b.

    Did you notice that major global recession?

    There was less work around and, ipso, less tax money around.

    Their options were (1) cut services, or (2) raise your taxes, or (3) run up some debt.

    If they had picked (1) or (2) you would still be on here today complaining about it.

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  10. BeaB (2,058 comments) says:

    Despite the media desperately trying to blacken the budget and Cunliffe’s farcical set speech with all its mixed metaphors and his new manly tone even David Parker had to admit on Morning Report that the Nats had done well.

    And that seems to be the mood of the nation. We are grateful we have a government that has given us sensible leadership, has set its course and stuck to it and may be taking us into a period of soundly-based prosperity.

    I don’t want fireworks and entertainment from a budget. Nor do I want the ridiculous posturing of the Left with their irresponsible antics. We need to remember Michael Cullen’s malicious pleasure in handing over a wrecked economy and enormous bills from his tenure.

    All power to John Key and Bill English – and a very strong, successful Cabinet.

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  11. kiwi in america (2,436 comments) says:

    The story of this budget was told in the two leaders’ speeches. Cunliffe was dour, snarky and reduced to endless rounds of class warfare rhetoric and wishful thinking. The body language of his caucus and their rather perfunctory applause said it all – this was not an incoming PM leading an energetic caucus brimming with talent and ready to govern.

    Key was full of energy and confidence as was his caucus. The man exuded strength and competence whilst slicing Cunliffe (and his attempts at spinning the 5th Labour government’s achievements) into small pieces. He had facts and figures at his fingertips and he painted the contrast between NZ’s vibrant and growing economy (and the positive options that gives to English in this budget) with the dire situation the Abbott government finds itself in after the profligacy of the outgoing Labor/Greens.

    Key has always struck me as probably the most pragmatic major party leader since the emergence of the modern party era in the 1930s but he added a new dimension to his pragmatism, one hit on in John Armstrong’s piece in the Herald, and that is his ability to blatantly steal some of the good ideas of his opponents. It is almost bi-partisanship by stealth but with decidedly partisan political benefits. Labour are reduced to moaning about the raid and promising more and better in an old fashion lolly scramble with the tax payers hard earned dollars.

    Right leaning purists have derided Key’s ideological skankyness but English was able to capture the mood of middle NZ perfectly as they emerge from 6 long tough years. Voters see a government that tackled its own finances in much the same way that households adjusted to the GFC triggered recession. The U13 free doctors visits breaks the rules of fiscal parsimony (that of targeting government benefits to those most in need) and yet it captures swing voter sentiment magnificently – a clean and simple gift to a nation that can really see light at the end of the tunnel and is getting ready to enjoy the fruits of a growing economy.

    Cunliffe’s bitter lament and Labour’s big spending, we-know-best socialist solutions seem completely out of place in a New Zealand that has clawed its economy almost to the top of the OECD pile led by a leader who the world’s most powerful man chose to spend an entire day of relaxation with and the world’s most revered monarch broke with precedent and invited to her very private retreat for 2 days!. My apolitical floating voter friend summed it up – he’s voting National for the first time because he said John Key is running NZ as successfully as the career that made him millions. The media will do all they can to try and drag the Labour/Greens/Mana/Dotcom carcass across the line but it will be an uphill battle because the success of the economy FEELS real and most don’t want to risk jeopardizing it.

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  12. I Say Look Here (35 comments) says:

    “I see workers on site at 6am.”

    Mate, the hardest workers in this country – the ones that are actually earning our living – are hosing down the cowshed by 6am.

    In fact, many of the ones you’re referring to will be seriously thinking about voting National now too, cos they quite like the idea of getting to keep their hard-earned instead of watching the gummint siphoning off even more in tax.

    And they won’t be slow to line their kids up in the Doctors’ waiting room alongside the rich pricks. Who incidentally are paying the bulk of the tax that makes policies like this possible.

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  13. slightlyrighty (2,496 comments) says:

    http://www.stuff.co.nz/national/politics/10052141/Labour-MP-Darien-Fenton-retiring

    Is this a Budget Reaction?????

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  14. Harriet (4,521 comments) says:

    No matter what the government throws at people or takes away from them in a budget – people always manage to get on with their lives.

    The budget each year should mainly be about curtailing the excesses of the public service.

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  15. backster (2,079 comments) says:

    no-one would want to deny young kids needed access to medical care but in my view it should be deducted from other handouts like
    fully paid breeding holidays and working family subsidies.

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  16. stephieboy (2,186 comments) says:

    Harriet,

    “The budget each year should mainly be about curtailing the excesses of the public service.”

    Which Biill and John are achieving most successfully

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  17. lastmanstanding (1,204 comments) says:

    slightlyrighty Yep Poor ole Darien Fenton can see the writing on the wall and has thrown in the towel ( mixed metaphors just like her leader).

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  18. Paulus (2,502 comments) says:

    Nothing in the Budget involves me or my Family.
    But great for New Zealand.

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  19. seanmaitland (455 comments) says:

    I’m moving my family to Australia for work (unfortunately its out of my control) this year, and so nothing in this budget is for me either, yet I think its bloody brilliant too.

    If Labour and the Greens had been in over the last 6 years we would be absolutely fucked by now, with money printing (Norman), massive borrowing (Goff) and high taxation.

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  20. OneTrack (2,604 comments) says:

    wiki – ” all very predictable.”

    Never mind wiki, by monday gr will be back on the critical issue facing nz Collins glass of milk.

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  21. calendar girl (1,175 comments) says:

    @ I Say Look Here, 10:56am – Haven’t seen your 5 previous comments on this site, but welcome. It’s great to see a relative newcomer to DPF’s blog offer sensible comments with a perspective of reality. Looking forward to your future contributions.

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