May 16, 2014 9:00am by David Farrar

Budget 2014 reaction

The Budget manages the election-year trick of appearing both fiscally responsible and socially generous. The provision of free medicine and visits to doctors for children under 13 is the main surprise. It is not restricted to families on lower incomes, it will be equally available to those who can easily afford to pay for their children’s medical needs. It is not the most efficient use of funds for health, which absorbs an ever increasing slice of the annual Budget.

By contrast, a parental tax credit is to be increased by $70 a week and extended from eight to 10 weeks but it will be better restricted to low and middle income households. As expected, paid parental leave is to be extended from 14 weeks to 16 next year and 18 the year after. It will also become available to those in seasonal or casual employment or who have recently changed jobs.

Those are the main gifts in a Budget that reflects a good economic outlook. …

The Budget’s best feature is the value Bill English seems to be getting for little extra spending on public services. Departments know the results he wants and seem to be delivering them without complaint from providers or the public.

They have stopped demanding endless increases in funds and he shared the credit with them yesterday for his surplus.

The public sector have done well in providing more, with less.

The ODT editorial:

Budget 2014 was handed down yesterday without much fanfare.

We all knew it was coming, of course, and most believed the pre-Budget hype of a predicted surplus after six years of fiscal restraint.

Many hoped there would be some loosening of the purse strings. Finance Minister Bill English has largely delivered.

This was the Budget that National – right from the time of its re-election in 2011 – would have hoped it could produce leading into this year’s election.

Mr English has not swayed from his path of fiscal restraint. Sure, he has had to borrow heavily during the past six years, but not to the extent the country plunged into recession.

Now, the return to surplus gives options such as paying down debt.

The careful management of the country’s finances by Mr English, and his team of ministers, has helped ensure New Zealand has been mainly immune from the worst of the global decline affecting Europe, parts of Asia, the United States and, latterly, Australia.

Economic growth has been one of the highest in the OECD and, for once, all Treasury indicators are pointing in a positive direction.

Also some interesting comments from Bank economists.

Tony Alexander from BNZ noted:

The return to surplus is a very positive development which stands in contrast with many more years of deficits projected in Australia. Across the ditch taxes have been increased and spending slashed. In the NZ budget it looks like scope exists for some tax cuts down the track and spending has been increased by small amounts in a variety of areas.

In his e-mail newsletter he commented:

The government’s budget this afternoon contained no surprises with a return to surplus predicted for next year and a complete absence of the horror underway across the Tasman where chickens have well and truly come home to roost after years of fiscal laxity. The divergence in the annual budgets with spending slashed in Australia and tax rates rising, versus scope for tax cuts here in NZ down the track will reinforce the massive switch in Trans-Tasman migration flows underway. Before the end of this year it is likely that for the first time since 1991 there will be a net gain to our population from Trans-Tasman flows.

That will be incredible if that happens. Globally, migration is almost always from smaller cities to bigger cities. People migrate from Wanganui to Wellington. From Wellington to Auckland. From Auckland to Sydney. From Sydney to New York or London.

What you don’t generally get is people migrating from Melbourne and Sydney to the smaller Auckland.

The ANZ noted in a newsletter:

The broad policy agenda from today’s Budget hit all the right notes at the macro level. A return to surplus is now within sight and the Government remains focused on the same key priority areas, including managing finances, improving productivity, better public services, and rebuilding Christchurch.

The fiscal numbers look good. A return to surplus continues to be pencilled in for 2014/15 ($372m) and rising thereafter, although the projected surplus of 1.3% of GDP in 2018 is marginal and not much of a buffer. Net core crown debt is forecast to fall to 20% of GDP by 2020.
While fiscal responsibility rhetoric is strong, an improving fiscal position and better economy have shifted the strategic focus of policy to managing an expanding economy and choices relating to future surpluses.
The growth projections look reasonable,which give the fiscal projections a sense of realism.
The Budget hits all the usual high notes and we like the emphasis on building the economy’s capacity; and the collection of small initiatives which we view as critical if the current expansion is to endure.

And also some comments from Alastair Thompson at Scoop:

Six years ago after Lehman Brothers hit the wall this Treasurer set his course. Today the first milestone has been delivered with a return to surplus.

And six years hence the second target is now in sight, a Govt. debt to GDP ratio under 20% by 2020.

Even two years ago in I was a little sceptical about the result being achieved in the time and manner Treasury was forecasting. Back then the Christchurch re-build was failing to thrive. Forecast wage (and income-tax take) growth seemed to be a over-egged. But on the other side of the equation Treasury was forecasting a veritable explosion in trade with China.

Two years later Christchurch’s rebuild is gathering steam, wage inflation was indeed over-stated but the forecast China trade boom delivered and then some. And NZ’s current account deficit problem, the one thing that everybody agreed was our achilles heel, has made a remarkable turnaround.

Looking through this year’s Budget Economic and Fiscal update it is hard to find anything to be concerned about. Whichever way you look at it NZ’s economic outlook is starting to look remarkedly benign.

That may depend on the election outcome!