The well-flagged Budget changes include:
• KiwiSaver subsidies are trimmed and employers and workers pick up the slack with minimum contributions lifted to 3%.
• Working for Families faces trim for the higher earners with fewer kids.
• Student Loans are no longer as “interest-free” for some and others face curbs.
They hardly amount to frontal assault on middle-class welfare, says Jack. “Bill English’s austerity budget cannot be remotely compared with Ruth Richardson’s ‘mother of all budgets’. This is because most of the expenditure restraint is forecast to come from public sector administration efficiencies and ‘reprioritisation’. This is appropriate. The noughties saw relentless rise in the number of public servants, and hence cost, with hard-to-find evidence of productivity gains. To date the private sector has borne by far the greatest burden of adjustment during the long recession, both in terms of employment and wages.”
However, Jack says this comes with its risks, not relating to cessation of services but to the capabilities within the public sector to drive out costs and reprioritise expenditure, and the speed with which they can do so. “The lower spending path of the last two years has helped condition attitudes, but this Budget sees quantum shift in scale and urgency of action.
“There remains reliance on rebounding economic growth to pull the country out of deficit (forecast to be in 2014/15 – just). Some commentators believe Treasury has significantly underestimated growth and no doubt positive surprise would be boost. But there are risks and many of these are on the downside – the global economy is not refiring on all cylinders, Australia’s two-speed economy is becoming more apparent, and business investment in New Zealand is still anaemic and will remain so until consumer demand recovers.”
The state of the balance sheet and unwillingness to tackle entitlements in more material way has meant that the Budget has not materially addressed two key areas – savings and investment and welfare reform, Jack says. Working Groups have reported on these and both have received little attention.
“These remain work in progress and something to perhaps look forward to in 2012. Overall Bill English has produced steady-as-she-goes budget. It is sufficiently austere to deal with the fiscal position we are in and will keep the rating agencies at bay – so long as economic growth returns.”
• Deloitte’s team has analysed the content of Budget 2011 and the likely impact of the major announcements on New Zealand business and the wider economy. For their comprehensive overview of the Budget visit www.deloitte.com/
