We predicted that this year’s Budget would be a balancing act – juggling the needs of a changing nation and the agendas of all three parties. And it is clear from what’s been delivered that this challenge has resulted in the balance leaning towards foundational versus transformational change. The Minister of Finance has characterised the budget as ‘preparing our country for the future by making sure its foundations are strong and sustainable.’ This budget, for the most, defers the delivery of significant economic and social transformational change into the future.
We’ve reviewed some of the key themes delivered in this budget and their significance for New Zealand businesses and the prosperity of our country.
Balancing the Government’s spending promises against the expectations of the business community was never going to be easy. However, predicted continued economic growth, reversing tax cuts and reprioritisation of spending and extending the debt reduction track, has left the Government with head room to start that process. The Budget mainly reinforces and recognises tax revenue and spending from what has already been enacted or announced (over five years), including reversing National's personal tax cuts to meet 100 Day Plan commitments on the Families Package and extra spending in the areas of health, education, housing and police, extending the ‘bright-line’ test taxing the sale of properties other than the family home from two to five years, proposed re-introduction of a 12.5% tax credit for R&D, and proposed collection of GST on low value imported goods. Any further announcements of more significant tax changes are unlikely to be made until the Government has had time to consider the Tax Working Group, chaired by Sir Michael Cullen, final recommendations, expected no later than February 2019. Read our full tax coverage here.
Child welfare and poverty reduction are key platforms in the Government’s announced intention to deliver a ‘Wellbeing budget’ in 2019. Both areas received additional funding and focus, complemented by the existing Families Package initiatives.
Infrastructure is the next key focus area, with Net capital spending in the next five years set to be almost triple that of the previous five years. The Government intends to spend approximately $42b through to 2022, predominantly on transport, housing, regional infrastructure projects and on health and education investments. New Zealand’s need to increase its investment in transport, social and housing-related infrastructure is driven by continued immigration, repair and resilience spend and growth in our major centres. The new Government has also identified a backlog in infrastructure maintenance – disputed by the opposition - including some high profile examples in schools and hospitals, requiring urgent investment. Read our full Infrastructure coverage here.
To fuel New Zealand’s prosperity nationally, we need sustained investment supported by a long term strategy that supports all areas of the country – so each region can perform at an optimum level socially, environmentally and economically. Main funding for the regions is the $1b Provincial Growth Fund, in the Coalition Agreement between Labour and New Zealand First. Broadly the Fund comprises $535m of new operating funding and $236m of new capital funding for investment-ready initiatives and the Government’s “one billion trees” planting programme; and $148m of existing operating and $80m existing capital funding now reclassified as included in the Fund. Read up on other Budget 2018 priorities which have a regional focus in our full regional coverage here.
Sustainability was at the core of some of the Government’s bold announcements this Budget (Green Party Co-leader, James Shaw, has described it as ‘the greenest budget in living memory’), including integration of the United Nation’s Sustainable Development Goals into Government Policy, measuring value more holistically through a refresh of the Treasury’s Living Standards Framework (LSF), and regulatory approaches to tackle the greatest challenge facing the world today – climate change. The Zero Carbon Act will increase the pressure on business to consider their footprint, measure their greenhouse gas emissions, and implement reduction strategies. The Government’s initiatives, coupled with the investor-led Task Force on Climate-related Financial Disclosures will further encourage businesses to disclose the financial risks of climate change, especially as we see business reporting that encompasses economic, social and environmental well-being rapidly gaining traction. Read our full Sustainability coverage here.
In summary, this is a Budget in which the new Government is balancing the wishes of three parties, largely delivering on their promises while not expanding spending and public debt beyond the expectations of the business community, thinking holistically about sustainability and wellbeing, and balancing infrastructure in our regions as well as major centres with its plans on regional economic development. The budget is this Government’s first step in the path to economic and social transformation that delivers prosperity for all New Zealanders.