New Zealand: Budget 2011: focused, but far-sighted?

Brief Counsel

The Government had to walk a knife edge in the preparation of this year's Budget - demonstrating a credible path back to Budget surpluses to keep the ratings agencies at bay while not sinking the National Party's chances of re-election.

The Budget will probably deliver on both these objectives. But there is little to lift New Zealand's long-run economic performance or to stimulate economic innovation.

We will put out a separate Brief Counsel on the KiwiSaver changes later.

The Budget numbers

As signalled, the Crown's balance sheet is forecast to come back into surplus by 2014-15, a year earlier than forecast in the Half Year Economic and Fiscal Update.

The Crown's borrowing requirements are projected to fall by more than two thirds next year, to around $100 million.
This will allow net debt to remain (just) below the magical 30% of GDP over the forecast period, peaking at 29.6% of GDP in 2014-15. This should be enough to keep the ratings agencies happy – a key budget objective.

New spending in Budget 2011 amounts to almost $4 billion over the next five years, most of it in health and education. These costs will be more than off-set by savings of $5.2 billion over the same period. The savings have been culled primarily from the changes to KiwiSaver, and from forced economies in the public sector.

Total expenditure (including New Zealand Superannuation, welfare payments etc) is, however, projected to rise by $4.3 billion over the next four years – from $72.8 billion in 2011 to $77.1 billion in 2015.

Budgets in subsequent years are also projected to be tough. The new spending allowance has been cut back to just $800 million in 2013, 2014 and 2015 (compared with allowances of around $2 billion a year under Labour.)

These projections depend on the Treasury's growth forecasts being realised. The Budget growth track, although reasonably bullish – 2.5%, 4%, 2.7% and 2.8% - is not out of line with market expectations.

An electable Budget?

Probably. The indications are that the public understands the need for austerity, and the Government has wisely held off most of the negatives until after the election (although public servants will feel the chill winds almost immediately, discussed below).

  • The 'cuts' to Working for Families (WfF) will be phased in over four years from 1 April 2012 to 1 April 2018.
  • The halving of the maximum KiwiSaver member tax credit will not be felt until after July 2012 and the tax free status of employer contributions will not be removed until 1 April 2012.
  • The changes to the student loans scheme were well-telegraphed in advance and most will not take effect until next year.

But although most of the pain has been deferred, it will eventually be felt. The extent to which it burns into National's support at that time will in large part depend on whether the private sector job and wage growth anticipated in the budget (170,000 net new jobs by 2015 and wage increases above the rate of inflation) are realised.

The public sector - the Budget whipping boy

Most of the 'hit' from the Budget will be absorbed by the public sector, which has been tasked with achieving $980 million in efficiency savings over the three years from 1 July 2012:

  • $650 million of this will come from State sector employers funding the costs of their employer contributions for KiwiSaver and some of the State sector retirement schemes from their own budgets (currently these are centrally funded), and
  • $330 million in 'back office' savings from 31 core government agencies.

The asset sales/acquisition programme

First on the block for partial privatisation are:

  • Mighty River Power
  • Meridian
  • Genesis
  • Solid Energy, and
  • a slice of the Government's shareholding in Air New Zealand.

The preferred sales method will be through share issues to the public. No decision has taken on how much of each company will be sold or when, but the Government will maintain at least a 51% stake in all of these assets.

The sales will be conducted through a three to five year programme from 2012 and is expected to free up capital of $5 billion to $7 billion. This money will be redirected toward investment in "social infrastructure" – schools, hospitals, broadband.

Not a big Budget for tax

After the major tax changes announced in last year's Budget, the 2011 Budget is predictably light on tax. None of the tax measures suggested by the Savings Working Group for encouraging savings has been taken up. The Government has preferred to make savings on its own balance sheet, rather than trust the private sector to do so. Furthermore, the increase in the WfF abatement rate from 20 to 25 cents in the dollar is contrary to the view of both the Savings and the Tax Working Group, that high effective marginal tax rates are damaging to income growth. What has been done in the tax area has the look of a Government searching behind the sofa for any loose change for the bus. The two definite tax changes that have been announced are:

  • removal of the tax exemption for employer contributions to KiwiSaver
  • an increase in the amount of capital (as measured for tax purposes) which foreign-owned banks are required to hold, from 4% to 6% of their risk-weighted assets. The Government expects this to raise around $31 million per year. In the context of annual bank tax payments of well over $1 billion, this is a relatively modest amount.

The Government has used the Budget as an opportunity to announce targeted reviews of three tax issues:

  • treatment of certain employee benefits, for social assistance targeting and for income tax purposes
  • tax treatment of mixed use assets, such as holiday homes which are available for rent, or yachts used for both private and business purposes. This review has the potential to affect a large number of more affluent taxpayers, and
  • manipulation of livestock valuation elections.

The first and third of these areas have been under consideration for some time. The second is an area of perennial practical concern, but sensible and acceptable changes to the legal status quo may be difficult even to frame, let alone implement.

Little to promote New Zealand's economic performance

In his speech to Parliament today, the Finance Minister stated that the Budget will "strengthen the long-term performance of the economy". And short term growth forecasts are certainly healthy. But, as the Budget itself acknowledges, the drivers of this growth are factors beyond our control - continued growth in our key trading partner economies, high export commodity prices, the receding effects of the global financial crisis and the stimulus from the Canterbury reconstruction.

When it comes to influencing our own destiny, there is little in this Budget that is new and which is directed at lifting our long-term economic performance, and in particular exports.

Instead, the focus is on reducing the risks in the national accounts and on cutting back the size of the state. These contributions should reduce the pressure on interest rates and the exchange rate and, the Government hopes, reallocate resources to and stimulate activity in the private sector.

But there is no new thinking on how we will tackle some of our longer term challenges, such as the long talked about evolution of our primary sector away from commodities to value-added products, or our aging population and the cost of superannuation.

The major items of infrastructure spending highlighted in the Budget are all a continuation of existing commitments, such as ultrafast broadband, KiwiRail and roads (or increases in "social infrastructure" in health, education, prisons and student loans).

Notably, there is nothing new for "science, innovation and trade", despite this being one of the six elements of the Government's "long term economic growth agenda". Instead $30 million in savings is being sought from the Ministry for Foreign Affairs and Trade, and funding has been shuffled around existing budgets for science and innovation.

In the financial circumstances we find ourselves in, the short term focus is understandable. But the longer term issues are not going away. For the healthy growth forecasts to continue, the Government is counting on the private sector to step up to the plate with export earnings. And quickly.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Mike Woodbury
Similar Articles
Relevancy Powered by MondaqAI
Chapman Tripp
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Chapman Tripp
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions