New Zealand Budget 2016

New Zealand Budget 2016

The New Zealand Budget announcement is on the 26th May 2016. This is our analysis and views on the government's plans.

KPMG's analysis of the New Zealand Budget announcement (26th May 2016).

This is a budget that reflects the population pressures caused by our sustained high immigration rates - and the resulting political pressures the Government is facing in health, education, infrastructure and housing. It is also a budget struck in the long shadow cast by the 2017 election and the Prime Minister’s expressed desire to campaign on offering meaningful tax cuts.

The Government has chosen to reinforce its path down the political centre with a budget that boosts social spending, particularly in health, but also seeks to boost economic growth through funding increases to infrastructure, and science and innovation. There is also a package of new spending to support social and emergency housing, as well as more funding to support housing development on surplus Crown land in Auckland. This package will not be enough to silence critics who want the Government to intervene further in the housing market, but the Budget hints at a forthcoming National Policy Statement on Urban Development that will direct councils to allow more urban development where necessary.

The social investment approach plays a central role in determining the winners from the social spending in this Budget. This approach of investing now to reduce future liabilities is more evident in the spending track than ever before; and we expect this trend to deepen, given the level of activity underway within the public sector. The primary focus in this Budget is on improving the life course of vulnerable children and youth through the reform of the Child, Youth and Family agency.

The main direct benefit to the business community of Budget 2016 is the relative certainty of a no-surprises environment, as the Government ploughs on with its Business Growth Agenda. The benefit of a relatively certain business environment should not be under-estimated and helps to support a GDP growth forecast of 2.8% on average over the coming five years. There will be indirect benefits to business through the Innovative New Zealand package, which boosts funding for science and innovation, tertiary education and apprenticeships.

This Budget also sees the Minister of Finance salting away some of the benefits of a stronger-than-expected fiscal surplus track into repaying debt; thereby holding the course on its earlier commitments to reduce net Government debt to 20% of GDP by 2020. Actual repayments do not start until the 2019 financial year. This will give the Government further headroom in case of natural disasters or should financial shocks emerge in the global economy, which could dampen New Zealand’s growth expectations.

In summary, Budget 2016 can be seen as both continuing the trend of recent budgets and preparing the ground for 2017. Voters are unlikely to feel comfortable with tax cuts next year unless they feel that the Government is adequately tackling the increasingly visible pressures in health, education, infrastructure and housing now; as well as managing the Government’s books. This Budget does its best to cover each of these.

To view our full Budget commentary, please refer to the below articles.

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