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The Beehive and Parliament - Source: ONE News
No doubt the hike in GST and changes to property tax rules will hog Budget headlines next week.
However, there is another increasingly important story that will emerge from Bill English's announcement on Thursday.
That is the health of the government's books and its overall debt position.
Events of the past few weeks in Europe have made public debt levels and, crucially, the sincerity of the efforts by governments to get them under control, virtually the number one economic issue on the planet right now.
Shockwaves from the Greek debt crisis and the huge trillion dollar EU rescue bailout this month are reverberating loudly in world markets and investors remain very jumpy and sensitive to the issue of public debt.
So any nation that looks as though it may be struggling to reign in its budget deficit in the wake of the recession will be especially punished by markets at the moment and as a result charged much higher interest rates.
Thankfully New Zealand is out of recession and has relatively low gross public debt of around 27% of GDP. This compares with over 100% for Greece.
In fact, so far during the sovereign debt crisis we have - according to bond traders - been regarded as a bit of a safe haven, due to our exposure to Australia and Asia.
This means we have actually been able to get interest rates lower than we might normally get.
Regardless of that, New Zealand can still expect plenty of scrutiny from international markets when the Budget is released.
Credit rating agencies like Standard and Poors will be running over the Budget numbers with a fine tooth comb for any weaknesses.
Most importantly it is likely they will want to see - given the current world economic climate - that New Zealand is moving steadily towards reducing its deficits and getting back into surplus.
Last budget, English signalled it could be 10 years of deficits even with the suspension of payments to the New Zealand Superannuation Fund.
But as a result of a growing economy and government public sector spending cuts, it's likely that 10 year time frame will be reduced somewhat on Thursday. One would certainly hope so.
Projected public debt levels that only a few years ago were predicted to spike over 50% of GDP are also likely to be lower.
However we are unlikely to get anywhere near Australia which in its budget this week announced it was expecting to go back into surplus in about three years.
But while our gross public debt may be low compared with other nations and not a major short term concern, our private debt to foreigners is still very high by world standards at $173 billion.
This is something the International Monetary Fund says makes New Zealand vulnerable to future economic shocks, and is a reason why New Zealand must keep its public debt extra low.
Over the last couple of years Kiwis have cut back on spending and borrowing and as a result our current account deficit has shrunk sharply.
But if we are to really reduce our reliance on foreign debt, and be ready to deal with future problems such as an aging population and ballooning health costs, then we must also grow the economy faster than we have been.
On Thursday the government will point to the reforms of GST and property tax, as one of ways in which it believes it can do that.
What do you hope to get out of next weeks Budget? How hard would a GST hike or property tax changes hit you? ONE News wants to know. Do you want tax cuts and more spending or belt-tightening to reduce our deficit? Let us know on the messageboard below or email news@tvnz.co.nz
Read more of Corin's articles here.
Add a Comment:
Post new commentWorried said on 2010-05-19 @ 12:34 NZDT: Report abusive post
I'm with you mouthguard, why do people not see that these tax changes are designed to encourage people to do better and work harder therefore increasing their standard of living. Why should these people and/or high income earners be disadvantaged or looked upon badly for doing so. I just don't understand some of these lefty comments!
Noddy samurai said on 2010-05-19 @ 11:24 NZDT: Report abusive post
The gap between the rich and the poor widens ... Yeah great job John Key (not)
zing said on 2010-05-18 @ 18:43 NZDT: Report abusive post
We'll all get severely spanked in the budget. Already this week we've had to stump up for $22 Billion worth of leaky homes (the Govt and the Councils flog our money!) and on Thursday there'll be more for us to pay. We have too many bludgers in NZ - that's the problem!
radar832004 said on 2010-05-18 @ 00:09 NZDT: Report abusive post
the problem isn't the tax system at all. The is next to no production happing in New Zealand in term of factories and jobs being created by New firms opening up instead we have every company with international ambitions sending jobs overseas take a look at telecom, fisher and paykel, telstra clear, even the government is out sourcing work to Australian firms! Less jobs means less tax being payed! its not rocket science!
santa0007 said on 2010-05-17 @ 11:48 NZDT: Report abusive post
The system does not work. Most New Zealanders is not all New Zealanders. Every person has a right in this country not "most of them". Votes count so do it with energy & mindfull of the future. The work which was available to most MP'S when they were young is not there now due to there policy making so vote for the ones who can directly assist you & will still be there employing people in the future.