Budget 2011 Summary

Budget summary

Public servants must find $1 billion in cuts, KiwiSavers will have to put away more and a clutch of state companies will be partially sold off as the National-led Government banks on voters viewing Budget stringency a virtue in an election year.

In his third Budget, Finance Minister Bill English thumbs his nose at earlier bleak projections and post-earthquake pessimism with a four-year plan to reverse the accounts from a record near $17 billion deficit to a surplus - a year earlier than previously budgeted.

Getting there depends on a combination of ambitious spending cuts, the economy bouncing back strongly and asset sales under National's "mixed-ownership" model.

Savers sore about losing KiwiSaver tax breaks are directed to the new investment options of shares in the Government's airline and four power companies or a new Kiwi Bond established to help fund Canterbury's earthquake recovery.

The so-called zero Budget forecasts the deficit to plunge by a third to under $10 billion next financial year, to $4 billion a year later and to cross the bottom line to be $1.3 billion back in the black by 2014-15.

Treasury forecasts Crown expenses to virtually flat line for the next two years while revenue rises by a healthy $4 billion to 5 billion year after year.

To pull off this turnaround Mr English plans on  raising $5 billion to $7 billion from floating the energy companies and reducing its stake in Air New Zealand, carving $5.2 billion out of operating spending - $1.2 billion more than what it needs for redirection to priority "frontline" services - and requiring departments to find a further $980 million.

If re-elected, the Government, will also make KiwiSavers and their bosses start paying a minimum of 3 percent into their accounts in 2013 after halving its $1040 annual tax credit from the second half of next year, with the double whammy of the tax exemption on the employer contribution being axed from April, reaping a combined saving of $2.6 billion over four years.

Government departments will have to find money from within their own Budgets to pay for their employer contributions instead of from a central fund, saving $650 million. They are also tasked with finding a further $330 million in unspecified "efficiency savings" from their operations.

Staggered changes to thresholds and abatement levels for Working for Families - the payments will abate more steeply and start on incomes of $35,000 instead of nearly $37,000 now - plus reducing payments for older children will save a further $448 million.

The Government estimates about 110,000 families will get less money, 7000 will no longer be eligible but 280,000 earning less than $70,000 a year will get more.

Tightened criteria for student loans such as limiting lending to people aged over 55 or with bad debts will save nearly $277 million.

Mr English says his strategy to return to surplus sooner will reduce borrowing requirements by $10 billion, so weekly net borrowing drops to $100 million a week.

Net Crown debt will double by 2013 but Treasury forecasts it will not breach the 30 percent of GDP mark that the Government has determined intolerable.
 
It is forecasting strong growth boosting revenue and employment, with unemployment dropping from 6.8 percent to 5.7 in the March 2012 year and below 5 percent from then, while employment will be growing 2.5 percent in 2013.

It expects the economy to grow by 1.8 percent in the 2012 March year, leaping to 4 percent a year later, while inflation falls to 3.1 percent next year and to be around 2.5 percent in following years.

Nominal wage growth is forecast to be above 4 percent by next year and to stay there.

Although there is a $4 billion allowance for new spending over the next four years, it comes at the expense of other spending and is focused almost entirely on health and education.

Health gets an extra $1.7 billion over four years and education gets $1.3 billion.

Mr English claimed credit for the Budget's "reasonable and sustained" economic growth forecasts which he said showed the economy growing by an average 3 - 4 percent over the next few years.

New Zealand was in for a period of reasonable growth because of high commodity prices and the rebuild work in Christchurch. People were saving more so growth would not be based on housing investment and credit card spending.

There would be 170,000 new jobs by 2015 while household disposable incomes were forecast to rise 4 percent over four years, he said.

The Budget set the Government apart from those on the Left who wanted to borrow to spend and those on the Right who wanted to slash spending and dismantle programmes that people relied on, he said.

The earthquake's direct costs to central government of $5.5 billion would increase debt in the short term but the costs were one off, and mainly  reflected in this and next year's Budgets.