Post budget comment

Rob McLeod Managing Partner for EY Oceania

  • Share

Bill English has been too conservative in reining in government expenditure.  If he were confronting a bleaker fiscal picture, like the Australian government, I predict he would have done better. Total government spending in New Zealand is down by $1.4 billion on last year. In Australia total taxes to GDP is 22 percent compared with central government taxation of 32 percent in New Zealand.

The predicted surplus is risky: the Government is projecting GDP growth of 2.5 percent going to 3 percent in 2015, (Australia's GDP forecast is in the same range).  GDP is affected by a number of risks, such FX, interest rates and our terms of trade.  Predicting GDP beyond twelve months in today's environment is not much better than guess-work.  Accordingly, the Government cannot afford to bank future optimism in its approach to expenditure control.  Again, Australia provides a bleak case study.  The Gillard Government was forecasting a surplus for the coming year only months ago before tabling a budget with a deficit of A$18 billion this week.

The Government is characterising a $75 million surplus in the 2014/15  as a return from the brink.  Interesting the Australian Government characterised a surplus of $800m in the forecast 15/16 year as breaking even.    A slim surplus in New Zealand in the midst of the risks I mention is not the safe high ground that is implied.

The Government is to be applauded for sticking to its position on assets sales.  If the government directs those proceeds away from direct revenue generation, such as to health and education, that will increase pressure on the Government's fiscal position

At the micro level relying on corporate and personal tax increases of $1 billion each to balance its books without any shift in tax rates is dependent on high levels of growth.  There is also an increased emphasis on tax avoidance, bringing with it more uncertainty which is not conducive to the investor confidence that New Zealand needs.

Overall, a reasonable budget reflecting a rosier view of the current risks than may be justified.  Time will tell.

Media enquires to Jenni McManus +64 21 971599