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On May 25 New Zealand Finance Minister Steven Joyce will deliver his first Budget since his predecessor Bill English assumed the prime ministership with the retirement of John Key in December 2016.

Joyce is in an enviable position with lots of room to move. New Zealand is experiencing strong economic growth and budget surpluses. The National government has confidence and supply agreements with the ACT, United Future, and Māori parties, giving it a clear majority in New Zealand’s single house of parliament. No testy senate or state negotiations are required.  

Reducing pressure further, Roy Morgan research from January 2017 put the government well ahead in the latest opinion polls on 46% support compared to Labour (30%), the Greens (12%) and New Zealand First (9%).  

The government surplus for the nine months ended 31 March 2017 was NZ$1.5b. Government debt, as a percentage of gross domestic profit, was just 24%, compared to 41% in Australia.   

New Zealand is experiencing strong economic growth and budget surpluses.

New Zealand is booming. New car sales were up by a record 5.9% in the March 2017 quarter; retail sales were up by 2.6% in the same period; and new dwellings consents were up 10% in the year to 31 March 2016.  

Here are three key issues Joyce must address in Budget 2017 with a New Zealand general election due just four months after the Budget is handed down.    

Housing affordability

Average house prices in Auckland, in which nearly more than a third of New Zealanders live, grew from NZ$829,000 in 2016 to NZ$956,000 in 2017. The housing price average for Auckland’s North Shore is now NZ$1.269m, and for sought after Central Otago, in the South Island, that figure is now NZ$800,000.  

New Zealand has no capital gains tax or stamp duty on housing sales. Despite this, first home buyers are finding it difficult, and in many cases impossible, to save the required deposit, let alone to service large mortgages.

Pressure on housing has been exacerbated by overseas investment and migrant numbers. Statistics New Zealand data for the year ended 31 March 2017 show that permanent arrivals were 129,500, up 5,400, with permanent departures of 57,600, yielding a net gain of 71,900. Large numbers of migrants settle in Auckland.  

Goldman Sachs reported in May 2017 that New Zealand’s housing market has a 40% chance of going bust in the next two years. The global investment bank noted that New Zealand’s housing market is the most over-valued amongst the G-10 group of developed economies.  

For Joyce, a self-made millionaire and former broadcaster with a reputation as a “Mr Fix It”, innovative solutions in housing affordability may be the yardstick by which his budget is measured.

Infrastructure spending

As a long, narrow country with a relatively low population of 4.7million, huge geographic and climate variation, and high annual tourist numbers (3.6million in 2016), New Zealand must constantly invest in infrastructure.  

Key Budget 2017 challenges will include public transport, roads and bridges. There is still not a multilane motorway between Auckland and Wellington and no multilane highways in the South Island, apart from city ring roads and entry and exits. Some cities also lack world-class facilities to cater for rising tourist numbers.  

Funding tourism facilities has become a major issue in the small towns of New Zealand where local councils have limited rating income possibilities, but huge tourist throughput.

One budget option to help reduce pressure on infrastructure, especially in Auckland, is regional relocation and settlement incentives for both migrants and locals.  

Key Budget 2017 challenges will include public transport, roads and bridges.

Another infrastructure related area in which Kiwis would like to see increased spending is policing and crime prevention. Latest Statistics New Zealand data for the year ended 31 March 2017 showed significant annual increases in assault (9%), sexual assault (4.4%), robbery and related matters (15.4%) and unlawful entry (17.8%).  

Tax

With a 10% bottom and 33% top rate for personal income tax, a universal 15% goods and services tax, and a flat company tax rate of 28%, New Zealand enjoys a well-balanced, albeit not perfect, tax system.  

In time attention may need to be given to lowering the corporate tax rate to remain internationally competitive. But more pressing issues include:

• arresting housing unaffordability    

• incentives to save for retirement (personal/employer superannuation is not compulsory)   

• means and/or asset testing government superannuation

• increasing the age of eligibility for the pension from the current 65

• personal tax cuts.  

In terms of housing affordability, any change to property taxes would need to be such that landlords do not immediately increase rents to compensate for such taxes and/or reduce supply.