Budget 2016 – the highlights

“The books are back in the black; there are choices in the future.”

Today’s Budget is the first English/Key Budget that moves beyond a series of slim surpluses and the freeze on spending imposed after the GFC in 2009.

Now it is looking out to some very big surpluses but those will be tempered by a priority to repay debt (Net debt target 20%i of GDP by 2020) and could yet by challenged by growing demographic pressures.

Already it is clear record immigration and an ageing population are imposing pressures particularly on education and health services that can no longer be resisted.

However the Government does have good news going forwards with a fiscal surpluses rising to a record $6.7 billion surplus being forecast for 2019/20. This is against a background of gdp growth forecasts which show an increase in this calendar year to 2.8 (2015: 2.5%) rising to 2.9% by the middle of next year chiefly reflecting solid domestic demand.

Net immigration is thought to be peaking at present falling away over the next three years.

That may take some pressure off Auckland house prices which the Budget Economic and Fiscal Update expects to remain high which will support ongoing house construction in Auckland.

Mr English told the Budget lockup that the surpluses (including the $6.1 billion one) would be committed to repaying debt but whether that will be the intention by next year’s Budget is a moot point. The electoral attractiveness of being able to foreshadow big tax cuts in 2019 may be too attractive to resist. But in his Budget speech Mr English listed as a fiscal priority  beginning to reduce income taxes “if economic and fiscal conditions allow”. But ultimately, as POLITIKToday suggested this morning this is a “steady as she goes” Budget heavily influenced by the new data-driven Social Investment approach to social investing which requires verifiable outcomes before spending will be approved.

THE HIGHLIGHTS:

THE SURPLUS (OBEGAL) – $billions

HEALTH:

• Another $1.6 billion for DHB’s spread over four years which just keeps up with the $500 million a year pushed by the CTU and Labour as the figure required keeping pace with demographic change.
• $96 million (over four years) for elective surgery to meet widespread frustration within National’s core electorate at surgery waiting times.
• All up the extra health spend is $2.2 billion spread over four years.
• And — reversing suggestions made earlier in the year — tobacco excise duty will rise by 10 per cent each year for the next four years.

INFRASTRUCTURE

Much of the infrastructure package highlighted in the Budget has already been announced. (Regional roading improvements; the NZ cycle trail; community facilities funding and $857 for the IRD’s Business Transformation Computer Upgrade project.)

• But one interesting item is $599.6 million set aside as a contingency for additional infrastructure development.  There is no further detail on this at this stage but it may well be intended for Auckland.

 HOUSING

Anyone hoping for a political king hit on the Auckland housing crisis will be disappointed. About the best the Minister can do is to repeat that the National Policy Statement on urban Development will be issued “soon.” This underlines the Government view that everything ultimately depends on the Auckland Council’s Unitary Plan. Otherwise it’s really more of the same:

• $242 million for various social housing needs
• A further $100 million to free up surplus Crown land for housing development in Auckland. 

SOCIAL INVESTMENT

As far as Bill English is concerned this is the heart of this Budget. The former Treasury Social Policy economist has applied the CBAx template to spending bids for the first time swinging the emphasis on spending to tangible, verifiable outcomes. Notably there is a substantial flow of funding going to NGO providers such as Christchurch’s 3K to Work programme, the Out the Gate programme for released prisoners and the Community Finance Partnership. Thus there is a $652 million package which includes:

• $347.8 million over the next four years for the revamped Child, Youth and Family service.
• $50.3 million to reduce barriers to employment including people with complex health conditions who would otherwise spend a significant time on a benefit.
• $43 million for schools to target children most at risk of not achieving. 

EDUCATION

Education Minister Hekia Parata is a big winner in this Budget. She’s getting another $1.4 billion over the next four years largely; it would seem, to meet population pressures stimulated by high migration.

• $397 million for early childhood education
• $883 million for new schools and classrooms
• Support for seven new Charter Schools.

INNOVATION

This will be a much spun part of the Budget.

• $113.8 million over four years to a renamed MBIE Contestable Fund (now called the Endeavour fund) which will invest in science that has  strong impact on “New Zealand’s economy, environment and society.”
• A 49% increase in the Marsden Fund over the next four years to $79.8 million in 2019/20.
• $63 million over four years for the bringing together of a number of strategic investments into a new Strategic Science Investment Fund.
• $16. 7 million over four years for Antarctica NZ.

Because this is presided over by Steven Joyce it has very precise (and obvious) political targeting like:

• $44 million over the next four years for the “regional Growth” programme – please note, Winston Peters.
• A further $40 million for the regional research centres, the first three of which in Otago, Southland and Marlborough were announced recently.
• $123 million over four years for tertiary tuition subsidies for core areas such as science and technology.
• $14.4 million over four years to fund 5000 more apprentices by 2020.
• $411 in “science and innovation”
• Tertiary education institutions will not be able to increase domestic fees by more than two per cent in 3027/28.

ENVIRONMENT

Confirmation that the “one for two’ subsidy which allows businesses to pay emissions units for only one out of every two tonnes of emissions they produce will be phased out over the next three years. The increase in price will be applied gradually, to 67% in January 2017; 83% in Jan 2018he full price form January 2019. The current price ceiling which caps units at $25 will remain. Other moves include:

• $16 over four years to tackle wildling connifers — a particular problem in major tourism areas in the South Island and Tongariro National Park.
• A new $100 million over 10 years to fund water quality clean-ups.

LAW AND ORDER AND JUSTICE

• $299 million extra over the next four years for police including $49 million from a Budget 2015 contingency for meet wage increases.
• ZZZ$208 million over the next four years for a number of justice sector initiatives including family violence and crime victims initiatives.
• $356 million over the next four year to Corrections to help reduce reoffending including $12 million to manage offenders returning from overseas. (Meaning Australia!)

DEFENCE, SECURITY

• $301 million over four years for defence to “concurrently undertake regional and international security tasks” — and, to meet the requirements of the one-day-to-be-released 2016 Defence White paper (previously known as the 205 Defence White Paper.)
• $179 million over four years for the security sector which will allow for “significant staff recruitment” for the SIS, GCSB and National Assessments Bureau.

OTHER BITS AND PIECES:

• $34.6 million over four years for te reo Maori
• $11.6 million over the next four years for the NZSO, Royal NZ Ballet and Te Matatini Kapa Haka.
• $178.9 million for Crown Prosecutions