Friday, May 25, 2012

NZ budget: toned down

THEY'RE like us, but different. New Zealand's 2012-13 budget cracks down on tax breaks for "baches", axes tax breaks for childcare and frozen subsidies, and hikes repayment rates for student loans to stick to its target to get the budget back in surplus by 2014-15.

In a budget criticised by commentators as dull and contractionary, Finance Minister Bill English also promises New Zealand its own Future Fund, financed by the sale of minority stakes in Air New Zealand and four electricity generators.

The budget is mostly normal. It raises more than $A1 billion from tax and revenue rises, and $A1.75 billion of spending cuts, and spends it in health and education, fixing the country's rail freight lines, and rebuilding Christchurch after the earthquake.

The bottom line ends up where it started, with net new spending of just $A20 million over four years, and a deficit edging down from $NZ8.4 billion ($A6.5 million) this year to a tiny surplus of $NZ197 million by 2014-15 all going well.

Last year's ambitious forecasts have been slashed to predict growth averaging 3 per cent over the next four years. Net debt is forecast to peak at 28.7 per cent of GDP in 2013-14, compared with a peak of 9 per cent forecast in Australia.

Next year's deficit is forecast as $NZ7.9 billion, with more than $NZ2 billion, 1 per cent of the country's GDP, being spent to rebuild Christchurch and other earthquake-damaged towns.

The tax rises primarily hit smokers and tax avoiders. Excise duties on cigarettes will rise 10 per cent above inflation for each of the next four years. And as in Australia, the government will be hiring more tax investigators to stamp down on avoiders.

But the budget also took on some sacred totems. New Zealanders renting out their holiday homes (or baches) will no longer be able to write off the full cost against tax. Tax credits for childcare, housekeepers and low-income earners will all be scrapped; Revenue Minister Peter Dunne said the threshold for the low-income-earner credit is so low that no full-time workers now qualify. And with the government under far less pressure than in Australia, the budget could tackle some long-term issues above all, Prime Minister John Key's crusade to tackle inherited welfare dependency, particularly high among Maori and Pacific Islanders.

The budget freezes subsidies for childcare centres in most of New Zealand and invests the money saved to set up new centres in disadvantaged areas, put $NZ1 million aside to provide "long-acting reversible contraception" to young women at risk, and pump more money into youth services and welfare-to-work.

The initiatives come out of two reports Mr Key commissioned into why New Zealand has the OECD's highest rate of youth suicide, and so much inherited welfare dependency. Both reports told him that early intervention to keep young people out of trouble is far more successful and cost-effective than anything you try to do once they're in it.

You can't imagine Julia Gillard or Tony Abbott giving these issues priority over those that chime with focus groups. But Mr Key who grew up on a welfare housing estate in Christchurch before making millions as a foreign exchange trader set himself three targets to meet:

98 per cent of young Kiwis to be in early childhood education by 2018 (up from 94.7 per cent now).

85 per cent to successfully complete school by 2017 (up from 68 per cent now).

Reduce the proportion of prisoners reoffending by 25 per cent by 2017.

"We firmly believe that people who can work, should work," Mr Key said.