-
Watch Video
-
Related
In the face of the worst global financial crisis in a generation, Finance Minister Bill English delivered a tough, tight and cautious budget that focuses on getting New Zealand's ballooning public deficit under control.
With changes such as deferred tax cuts and the suspension of Super Fund payments, the Budget will bring the government's forecast debt to around $7.7 billion over the coming year.
English says Standard & Poor's decision on Thursday to not only keep New Zealand's AA+ rating but also lift the outlook from negative to stable came as a surprise, but he says it is one "dark cloud on the horizon" that that Budget managed to avoid.
"A downgrade would force up interest rates right across the New Zealand economy and that would shake off recovery, so this is positive and a bit of an opening for New Zealand to build its story internationally into a positive story so we can come out of this recession in better shape than other countries," he says.
But Labour leader Phil Goff says a stable credit rating does not guarantee that the Budget will help stabilise the economy.
"These were the agencies that gave Enron a triple A (rating) weeks before it collapsed. These were the agencies that gave triple A to the sub-prime mortgages," he says.
Super Fund suspension
English has also defended criticism over deferring contributions to the New Zealand Super Fund that will see no payments made to the fund for 10 years.
He says this is an appropriate response given that the fund was set up to absorb surpluses and invest them to help underpin government funding in the next 20 years.
Instead, he says this year's Budget's focus on lifting productivity will better underpin superannuation entitlements in the future.
"The best thing for people who are heading to retirement is a fast growing economy that is not burdened with debt," he says.
Labour has, however, accused the government of killing superannuation, saying it will be impossible to take the Super Fund back to the level where entitlements can be paid.
"Superannuation was a pact between generations. It's not fair for you or I to say to younger people 'pay your taxes now for us for when we retire, when you get there it won't be there'," says Goff.
The suspension of funds is part of a tight Budget that Westpac chief economist Brendan O'Donovan says ultimately comes with trade-offs.
"It's that balancing act between trying to provide some sustenance to the economy at present versus future tax liabilities," he says.
However, he says superannuation is a "huge issue" that will need to be dealt with one way or another.
With an ageing population, retirement income and health related expenses are likely to amount to about 8% of GDP, and O'Donovan says this will lift the Crown's core expenditure from 36% to an undesirable 44%.
He says this represents the possibility of either future tax increases, more tightly targeting govt expenditure, raising the "speed limit" of the economy - such as focusing productivity through flatter tax structure, higher GST, reduced working for families.
That, or lift the age of entitlement.
Cullen would not be drawn into a debate on whether New Zealand should lift its retirement age from 65 years old to help fund retirement, saying that a focus on improved economic activity was a higher priority.
Across the Tasman, Australia announced in its recent Budget that it would gradually raise the superannuation entitlement age to 67 years old to deal with an ageing population - a demographic similar to New Zealand's.
Beyond superannuation
Business has generally welcomed the Budget though there were some gripes about the lack of specific details for boosting productivity.
English has rebuffed the claims, saying there is no single thing that increases productivity.
As a result of the Budget he says there is now a dedicated roads fund, 7-8 projects of national significance, an ultra fast broadband rollout, the upgrading of schools and a big investment in housing stock and an insulation fund.
"There's job-rich investment there but it's all long term investment aimed mainly at opening up the bottlenecks that were there when the economy was growing before and will re-emerge again if we don't invest," he says.
As well as investment in infrastructure the government will undertake a sweeping regulatory reform programme ranging from changes to the Overseas Investment Act that will make foreign direct investment more attractive.
English says there will be an intensive policy and legislative
changes around this programme over the next two years.
