There were no hidden surprises in Bill English’s third Budget (2011-2012), with its key message being simple: ‘Responsibility.’
We have heard many times over the past couple of years that New Zealand needs to get its debt down and stop relying so much on borrowed overseas money.
The Budget’s major focus on increasing New Zealand’s overall levels of savings and investment was therefore welcome.
But while the Budget does tighten the reins on spending, the economy will not be fixed just by trimming back the odd entitlement.
Serious economic challenges remain for New Zealand, and at some point, ideally soon, the Government should take a serious look at all parts of its spending programme and reassess priorities.
Positively, the Budget made changes to several major entitlement programmes that cost billions of dollars per year. For example, KiwiSaver contributions are to be halved from July 2012 and the rate at which Working for Families payments will abate will increase from 20% to 25% when changes are made for inflation.
Eligibility for interest free student loans has also been tightened.
Over the next four years, the changes to these entitlements are expected to save about $3.4 billion. These savings will help pay for increased spending on health, justice and education.
These and other measures mean that New Zealand need not keep borrowing $380 million per week to fund Government spending, and the operating deficit should be gone by 2015.
That is, as long as the economy behaves well. We hope it does.
The Budget relies on a number of factors coming in to play as expected. These include rebuilding of Christchurch contributing to economic growth from 2012, New Zealand continuing to benefit from high commodity prices and consumers spending and saving predictably.
The Budget does not get us out of deep water. New Zealand still faces serious economic challenges.
If the economy does not resurge, then the fact that Government expenditure still exceeds tax revenue will be exposed and our persistent current account deficit will be revealed.
New Zealand’s total foreign liabilities (not just the liabilities of the Government) remain dangerously high at about 80% of GDP.
Budget 2011 starts a process of seriously curbing the Government’s borrowing and spending.
But the Government and New Zealanders must continue to look for reductions in these areas to ensure that the economic recovery is strong and that the country is treading water by 2015.
This means laying all areas of Government spending on the table and asking hard questions again what takes priority.
