New Zealand Government’s Budget predictions
PwC Partner and Tax Leader Geof Nightingale’s video transcript
Thursday 17 April 2014
So this year’s Budget is a pre-election Budget and it’s a chance for the Government to outline the
policies it will take to the election. I don’t think there’s going to be any real surprises. Budgets these
days are forecast well in advance and we’ve had some clear signals from Minister of Finance that they
will be aiming for the surplus and they’ll start a programme of debt repayment. There might be a billion
dollars of extra spending, that’s the allowance the Government given itself, but one thing is for sure –
no tax cuts, unfortunately now and not in the near future.
In terms of the fiscal strategy from this budget – I don’t think again there will be any surprises. They
are going to work very hard to deliver a small surplus and I think the Budget will show forecast of
growing surpluses in the next few years, over a four-year period. Those surpluses are going to, by and
large, be put into paying debt. Debt forecasts are at their peak, at about $64 billion and the
Government wants to get that total down to about half that total by 2020.
One thing I think we are going to see in this Budget is a very clear focus on increasing New Zealand’s
exports. New Zealand runs a current account deficit and that current account deficits forecast will
continue - that’s a structurally imbalance in the economy that we need to fix. To fix that, we really need
to increase our exports, to increase our exports we need to increase our international connectedness,
and the Government has had a long programme continued from the previous Government, of
expanding our trade agreements (our free trade agreements) and removing barriers for New Zealand
business to go to market.
In some ways, New Zealand is at cross-roads with this Budget. We’ve come out of the Global
Financial Crisis which we went into 2009, quite strongly in the last six to twelve months and economic
growth is forecast to continue at about two and half to three per cent for the next four or five years.
This is a real opportunity now to capture the gains that have been made in the last couple of years and
to drive reform, which will cement that recovery and keep it going.
A number of observers in the Government itself have said that the New Zealand economy is poised for
a period of quite strong growth, in a relative sense and most of the economic indicators would suggest
that is the case, business confidence is the highest it’s been for twenty years. But there are still risks;
we live in an uncertain world and key risks that the New Zealand economy faces include what’s
happening to our major trading partners. Australia is going through a very difficult period and that’s
one of our major buyers; China is going through a difficult period and it’s hard to tell quite how difficult
that is or how significant that will be. There are also domestic risks, inflation is starting to appear again
and needs to be contained and the measures to contain that will drive up our interest rates, and when
interest rates drive up, that effects consumer demand. So, whilst we are in a very good position and
hopefully will be sure to rise, it’s not guaranteed.
With this Budget coming out of very hard times and coming into better economic times, there is a real
opportunity for the Government to focus on policies that will contribute to our economic and social
success. On the economic front, we think the real focus should be the mico-economic reforms, so a
real laser focus on reforming regulatory regimes that might impede business growth, whilst keeping
the appropriate structures in place and governance in place, but trying to get out of the way of
economic growth. On the social front, the risks around the social issues undermining the economic
growth are real. And they have to be addressed but they can’t be addressed with just more money, it
has to be how the money is spent. So, a continuing focus on getting better value for our public funds
would be appropriate.
In this Budget we would expect to see some signals from the Government to businesses about where
and how they want the economic growth to proceed. It’s not the Government’s role to direct that
growth; it’s the Government’s role to provide the frameworks. Perhaps the best example of that is
using New Zealand’s leverage to get the free trade policies and access to markets in place, and then
allowing businesses to exploit those, and businesses can help the Government with this process.
Businesses need to be telling the Government what things concern it, it needs to be telling
Government what are the barriers in its way to business and economic growth.
So despite the improving economic climate, this is still going to be a challenging Budget for the
Government. They’ve made a political commitment to getting the Budget to surplus and starting a
process of debt repayment. At the eighth month they are about a billion dollars behind in their tax
revenues, that shortfall to get to surplus is going to have to be made up from some spending
compromises. There are real headwinds internationally with our major trading partners and there are
some domestic concerns starting to emerge about rising interest rates and inflation.
Nonetheless, this is probably the best climate that the Minister of Finance has had to set the Budget in
for the last six years, so I’m sure he will enjoy the task.
-Ends-
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