A "tick the boxes" budget

​Budget 2018 has a “tick the boxes" approach which will probably do the job the Government wants but without generating much political upside, or downside.

We look at the budget package.

Economic and fiscal outlook

The economic outlook offered by the Treasury is solid – growth picking up from 2.8% this year to around 3.3% in the next two years before slipping back under 3% as immigration volumes ease and interest rates begin to rise.

The fiscal position is also sturdy, allowing Finance Minister Grant Robertson to maintain his promised surpluses while also easing the purse strings a little since the publication in December of the Half Year Economic and Fiscal Update (HYEFU).

The operating allowance over the next three budgets is $2.8 billion on average.  This is $525 million a year ahead of the HYEFU forecast, although these amounts are net and may be made up in part of spending cuts elsewhere or increased tax revenues.

The new capital provisions are $3.8 billion this year, $3.7 billion next year, $3.4 billion in Budget 2020 and $3 billion thereafter – an increase over the HYEFU of $300 million a year. 

Health

As expected, health is the big winner but, although the numbers are large, the spending track per head of population is only slightly higher than was sustained under National.

Health gets an operational spending boost of $3.2 billion over four years, of which $2.2 billion will go to the District Health Boards (DHBs).  It will also get $850 million capex for this financial year: $750 million for pressing problems (think mildew at Middlemore) and $100 million which will be available on application to assist deficit strapped DHBs.

Free doctor visits have been extended to the under 14s and subsidised visits to all community card holders, Housing New Zealand tenants and people receiving the accommodation supplement or income related rent subsidies.  

Education

The free fees, introduced as part of the government's first 100 days programme, continue to dominate the new education spend.  But the compulsory sector gets around $1 billion a year in each of the next four years for a school building package plus funding for another 1,500 teachers and there are also boosts for learning support and early childhood education.

Housing

The budget provides funding to build 1,600 new state houses a year over the next four years, up from an existing commitment to build 1000 a year.  This seems a bold ambition given the difficulties afflicting the government's flagship KiwiBuild policy.

Treasury has halved the anticipated spur to residential investment from KiwiBuild within the next five years from $5 billion in the HYEFU to $2.5 billion.  But it notes tactfully that this activity has not been “lost" – merely deferred.

Business

Although the design of the proposed 12.5% R&D tax incentive for expenditure is still being finalised, the budget allocates $1 billion over four years to this purpose.

IRD has been given $23.5 million to ensuring that company tax returns are filed.  This is expected to recoup $183.3 million, which is quite a substantial return on the government's “investment".

A new “oversight unit" will be developed to oversee compliance with the Resource Management Act and to improve consistency across councils.

The elephants in the room

Although the roiling state sector wage round will be very much in Robertson's mind, it is scarcely mentioned in the budget except as a “cross portfolio fiscal risk".  Robertson assured the budget lock-up that contingencies had been made but seemed satisfied that no-one would be able to find them (having the putative allocation out in the public arena would undermine the government's negotiating position).

The planned mega-prison seems unlikely to proceed.  Instead the budget focus is very clearly on re-integration and community management.

Transformation seeds planted

This budget is mostly engaged with problems very much in the here and now. However there are some small moves in the budget toward the Government's “transformational" agenda.  They include:

  • $100 million for the Green Investment Fund, to be established later this year
  • another $15 million for the hopelessly oversubscribed Sustainable Farming Fund
  • extra funding for Overseer, a farm management tool to measure nutrient use and greenhouse gas emissions.

Consultations will begin in August on establishing an independent fiscal institution to provide all political parties with non-partisan costings on their policies.  This is a Green initiative aimed at strengthening our democracy and enabling the public to make informed choices.

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