The Labour Government’s recently announced budget contained few real surprises.
In itself, that was hardly unusual – we are heading towards an ever-tightening national election campaign later this year, so perhaps understandably the government’s main aim was to exude calm. Or as Craigs Investment Partners’ economist Mark Lister said during a post-budget event analysis held in cooperation with the Tauranga Business Chamber, to put it cynically, members of the government would like to keep their jobs.
“It was pitched as ‘no frills’,” said Lister. “But it was quite stimulating. There was less money to spend and more debt will be issued.”
KPMG tax partner Rob Hill, who co-hosted the Craigs’ analysis, added Labour seemed to be retaining their post-election tax policies.
Of course strictly speaking, not all members of the Labour government are guaranteed to keep their jobs. Labour has already seen two defections from their allied ranks, which is hardly an inspiring look for a government going into an election.
Put your money to work
The coming period was likely, Lister suggested, to be a good time to put your money to work. “You don’t want to buy when everything is at an all-time high.”
Chartered Accountants New Zealand country head Peter Vial, in his summary, indicated that in his interpretation the Treasury was no longer forecasting a recession, but added that a return to a surplus had been deferred by one year to 2025-26. “We were promised a ‘no frills, bread and butter’ Budget and that is what we have got,” he says.
Dropping the $5.00 prescription charge was a no-brainer but let us not forget that several major pharmacy brands have already knocked off the charge in the interest of business-building; basically the charge is a small tax and removing it cannot be said to be making a huge contribution to improving the generally poor view held by many New Zealanders about their access to medical facilities or health care affordability.
Having ruled out tax cuts on affordability and ‘inflation risk’ grounds, the government has focused on targeted support for families, students and young workers and others most affected by cost-of-living pressures, says Vial.
Outguessing the opposition
The lack of any major tax changes partly reflects an attempt to outguess National Party predictions, of course.
However, the extension of Early Childhood Education subsidies will be welcomed, noted Lister.
Free public transport for children under 13 and permanent half price fares for the under 25s reflects a more targeted approach.
Generally, the budget was much more stimulating than expected, said Lister. But inflation remains stubbornly high and mortgage rates are going up.
Pre-budget, and before the Reserve Bank of New Zealand’s latest Official Cash Rate (OCR) recent revision, economists had increasingly expected the RBNZ would indicate a peak of perhaps six percent.
Instead, the central bank has issued forecasts for the future level of the OCR that are quite similar to those issued in its previous statements in February. It sees the OCR staying at 5.5 percent till the second half of next year before slowly declining.
Dealing with damage
Of key concern to whoever wins power this year is how to effectively respond to this year’s cyclone damage, reportedly the second-largest natural disaster New Zealand has experienced.
The budget announced a further $859 million of operational expenditure allocated to cyclone and flood recovery, on top of the $889 million already provided.
Importantly, the need to invest in immediate recovery measures has not come at the expense of significant allocations for medium- and longer-term capital infrastructure expenditure ($71 billion over the next five years). To put it bluntly, we haven’t invested enough in this area.
Infrastructure will remain a major preoccupation for whoever holds the government benches by the end of the year.