Unlike recent Government Budgets, the media (so far) has been fairly unopinionated on Budget 2018 or the Finance Minister for that matter. Commentators have instead labelled the Budget as a “restrained Budget”, “National-lite”, “pale blue”, “predictable” and “fiscally restrained”. Overall it seems most believe the Coalition Government has however largely delivered on its election promises.

Although the Budget has been somewhat underwhelming, with no real surprises, there is $24b of additional spending required to fulfil various policies the Labour coalition campaigned on.

The question is, will the Budget deliver funding in the right areas for New Zealand to continue to prosper?

Themes for Budget 2018 were:

  • Rebuilding critical public services – $6.5b of new operating funding and $1.8b of capital funding in areas of Health, Education, Justice and supporting at-risk families
  • Promoting economic development and supporting the regions – $2.8b of new operating funding and $1.2b of capital funding.  Of note is $1.1b of capital spending on infrastructure, productivity and the regions. R&D has been allocated $1.1b of operating expenditure.  New Zealand’s international presence has been allocated a hefty $1.1b of operating expenditure
  • Taking action on child poverty, housing and homelessness – $813m of new operating funding and $369m of capital funding.  This includes a significant investment in public housing of more than 6000 homes over the next four years and free GP visits being extended to children 14 and under
  • Enhancing and protecting our natural resources – $436m of new operating funding and $213m of capital funding.  Includes funding to support the planting of the one billion trees that labour campaigned on.  Funds have also been allocated to climate change including a new climate change Commission and a Green Investment Fund
  • Enriching New Zealand’s culture and identity – $491m of new operating funding and $43m of capital funding.  $386m of this funding is for the Defence Force.

Schools and teachers seem to have missed out in this budget and appear to have not been funded to the degree that the sector was looking for.  Police have also had less funding allocated than had been campaigned on.

The Budget announcements also covered the Government’s 100-day Plan, which included:

  • $5.5b families package
  • $2.6b education and training funding (which included the free tertiary study)
  • $2.0b for “Kiwibuild” to deliver 100,000 affordable homes throughout New Zealand within a decade
  • $3.3b of contributions to the New Zealand Super Fund.

Other than tweaks to the bloodstock rules, Budget 2018 contained very few tax related announcements, although there were funds allocated to the IRD to bolster its revenue gathering activities, specifically:

  • $23.5m over the next four years to improve IRD’s ability to ensure outstanding company tax returns are filed
  • $3m for IRD to identify legislative opportunities over the next four years to improve tax compliance in specific industries through the use of third party reporting and withholding taxes
  • $4.3m over four years to implement and administer the recently announced R&D tax credit.

So what does this all add up to?  $24b of additional Government spending!  Given recent business confidence surveys since the change in Government is the lowest since 2009 and there continues to be general unrest around the world thanks to “Make America Great Again”, I am a little pessimistic on the Government’s ability to fund these initiatives and stay on track with core Crown debt levels.

It is noted that $7.9b of the additional spending will come from reversing National’s tax cuts and $5.3b will come from the growing economy.  But will the economy continue to grow as projected and will their forecasts withstand any significant event?

Fiscally there is no doubt the Government was left in a very good position as a result of the previous Government.  Time will tell if that will continue under the new Coalition Government, as they will clearly be relying on strong company profits and employment growth to fund future spending.

Phil Barlow
Tax Director
T +64 9 414 5444
E phil.barlow@hayesknight.co.nz