Date posted: 26/05/2017 3 min read

Examining New Zealand's Budget 2017

A detailed look at the key components of New Zealand’s Budget 2017, handed down by Finance Minister Steven Joyce on 25 May 2017.

In brief

  • New Zealand’s Budget 2017 spends big but keeps the Crown accounts in the black.
  • The National Party’s soft-left feint is most visible by the way Budget 2017 ignored the party’s traditional supporters.
  • Government forecasts of an average growth of 3.1% over the next five years are ambitious.

By Pattrick Smellie.

The grab-bag of clichés for different kinds of government budgets includes stalwarts such as “tax and spend”, “borrow and hope”, “slash and burn” and “hip pocket”.  

The recent Australian Budget 2017-18 was in the “tax and spend” category and projected an eventual return to fiscal surplus. But New Zealand’s ninth budget from the National Party-led New Zealand government was a “hip-pocket” affair that spends big but keeps the Crown accounts in the black.  

Look at the headlines the New Zealand government can play with following the release of Budget 2017 on 25 May. In a country of 4.6 million people, 1.3 million families (not just citizens) will benefit from the mix of income tax threshold changes, targeted family support, and increases in accommodation support announced in Budget 2017.  

The cost of that package is NZ$2b, while the average impact per household is expected to be NZ$26 a week. That’s material reach into middle New Zealand. Families on the lowest incomes in areas with the highest rents will do far better than that.  

Addressing housing costs

Some 20,000 households will rise above the level of “severe housing stress” and 50,000 fewer children will live in households where families receive less than half the median income (a measure of poverty).  

New Zealand’s ninth budget from the National Party-led New Zealand government was a “hip-pocket” affair.

In a country where income inequality and the skyrocketing cost of housing are two of the biggest political issues, Budget 2017 scratches those itches. And it continues to move a centrist government more squarely into traditional Labour Party territory, less than four months out from a general election on September 23.  

Labour’s closest parliamentary ally, the Green Party, voted to support the entire families package, as did the New Zealand First party led by the mercurial veteran Winston Peters, whose current polling makes him a post-election kingmaker.  

The Labour Party is snookered. It supports the accommodation benefit uplifts while noting it will do nothing to fix the chronic under-supply that has made Auckland one of the world’s most expensive housing markets relative to income. It also supports the higher tax relief for families.  

If elected, the only thing the Labour Party wouldn’t implement is the changes to income tax thresholds, which offer tax relief to the lowest income bands. It would redirect those funds to areas of social service need such as health, early childhood education and state house construction.

New Zealand's Budget 2017 must ease growing pains

Three key issues that Finance Minister Steven Joyce needs to address when he hands down New Zealand’s Budget 2017 on May 25.


Election looms

To shore up its current strong electoral position, the National Party needs only a small number of lower income voters to decide that Labour would rob it of their lower tax burden.  

The National Party’s soft-left feint is most visible by the way Budget 2017 ignored traditional supporters by making no change to tax thresholds on the highest incomes or the corporate tax rate.  

Bill English’s replacement as finance minister, the National Party’s election campaign manager Steven Joyce, is dropping liberal hints that this will just be a matter of timing.  

The English-led government is calculating that the New Zealand electorate, left-leaning by comparison to Australia’s, would reward a Budget that nods towards the country’s now-fading image as an egalitarian society.  

Forecasts of an average 3.1% growth over the next five years are ambitious.

The dividend for business and the productive economy in this Budget comes in the form of a massive increase in capital expenditure on infrastructure upgrades across the road, rail, health and education sectors, among others.  

A significant chunk of that spend goes to improving the country’s resilience, a focus created by the fact that New Zealand has suffered greater shocks in the last few years at nature’s hands (particularly earthquakes) than anything the global economy has dished up.  

Where Budget 2017 fails

So, what is there to criticise in this year’s Budget? For a start, operational spending climbs in many areas of political vulnerability, but in real terms most social spending is still falling.  

There is also very little vision for the country. The infrastructure spending is largely catch up after a lean decade, while the tax cuts don’t fully compensate for fiscal drag since the last big tax system rebalancing in 2010.  

Forecasts of an average 3.1% growth over the next five years are ambitious. If they don’t eventuate, the government risks slipping back into fiscal deficit because in its bid for re-election it is spending every cent of the surpluses it would otherwise be banking.  

That growth also relies on the continuation of very high net migration, which is suppressing wages, adding to the unsustainably high cost of housing, and is one of the top three election issues.  

But with net Crown debt heading comfortably below 20% of GDP by 2020, government spending gliding down as a proportion of GDP, a manageable current account deficit rising to just 4% of GDP, unemployment at 5% or below and one of the highest participation rates in the OECD, the picture is hardly bleak.  

New Zealanders may grumble that their wages are lower than Australia’s, that their houses cost too much and that their government lacks a bold vision. But they also know the rest of the world is an increasingly scary and unwelcoming place.  

Polling results sugguest that New Zealanders believe their government remains on the right track. It’s hard to see how anything in Budget 2017 will dent that.  

Pattrick Smellie is an owner of BusinessDesk, a New Zealand economic and business news service and a one-time NZ correspondent for The Australian.