Govt can't commit to reviewing parental leave once surplus comes because of commitments to public service, super fund, debt repayments

The need to maintain public services, resume contributions to the Super Fund, rebuild the Earthquake Commission's disaster fund, and pay down debt, means the government can't commit to reviewing entitlements like paid parental leave when it hits surplus, Finance Minister Bill English says.

The government has set itself a target to turn its books around from a record budget deficit over NZ$18 billion last year to a surplus in the 2014/15 year. Treasury is projecting a surplus of only NZ$370 million in 2014/15, a figure which could easily be turned to a deficit by a whole raft of factors, such as further minor earthquake costs from Canterbury, or stickier-than-expected unemployment.

The admission by Prime Minister John Key two weeks ago that the government would follow last year's zero budget with the same in 2012 indicates how difficult that surplus task is. The government had been planning to allow itself an operating spending increase of NZ$800 million in Budget 2012, which is now set to fall to zero.

The situation with the books, and the fact the government is effectively staking its reputation on hitting that 2014/15 target, saw Finance Minister Bill English on Wednesday say the government would veto a members' bill put forward by Labour MP Sue Moroney which sought to double the amount of time mothers were allowed for paid parental leave to six months.

The law change, which would likely have majority support in Parliament, would increase paid parental leave by four weeks each year, so that it hits 26 weeks in 2014. That means the bill would cost the government an extra NZ$11 million in 2013/14, according to Labour's modelling, NZ$68 million in 2014/15, before hitting the NZ$150 million mark in 2015/16.

The veto power wielded by English is usually used in cases where opposition MPs try and introduce amendments to government bills while that government-sponsored legislation is before Parliament. This often occurs by way of hand-scribbled note while Bills are being debated at 9 o'clock at night. But in this case, Moroney's bill was drawn from Parliament's private members' bill ballot, and was likely to have received the support of the majority of the house. 

So whether the move to announce early the government's intention to veto the bill was more a political or financial move by the government is up for debate - vetoes are exercised during the third reading of Bills; Moroney's hasn't yet had its first.

'Because we've got other spending commitments'

In announcing the veto, English told media in Parliament this week that it had been challenging for the government to maintain entitlement payments through the recession. 

“We have worked very hard, and the Prime Minister’s been strong on this, since the 2008 election to protect the entitlements in place, and despite the fact we’ve had very large deficits, paid parental leave has stayed in place untouched, along with other family-based entitlements, which have been largely untouched,” English said.

“I think everyone can agree with the general principal of supporting parents and young children. We support it, we protected that through the recession, but we think it’s just getting a bit ahead of ourselves when we are still NZ$10 billion away from clearing our overdraft. We’ve got to get on with that and be fair to everybody in achieving surplus, and people can have those choices once we get there,” he said.

The government would not be making a commitment at present to review its decision once the books were back in the black. That was because of other spending commitments the government had once its revenue intake was higher than its expenses.

“That would be very premature [to commit now]," English said.

"When government gets to surplus, there’ll be a whole lot of things it has to do then – make sure it’s maintaining public services that have been under pressure, putting money into the super fund, rebuilding our capacity to handle another earthquake, getting our debt down," he said.

"Of course families may be expecting, if they’ve been tight for a while, something for them. Those are all choices to be made at the time.”

Record deficit

The government suspended contributions to the Super Fund - nicknamed the Cullen Fund - in the 2009 Budget. It said it would resume contributions once it was back in surplus.

In October last year Treasury announced the government recorded a record NZ$18.4 billion deficit, before investment gains and losses, in the year to June 30, 2011. Half of the deficit was attributed to costs stemming from the Christchurch earthquakes.

Those Christchurch earthquakes wiped out the Earthquake Commission's NZ$6 billion disaster fund. The government says is a priority to rebuild the fund, and in October last year announced earthquake levies would treble in an effort to rebuild the fund over a 30 year timeframe.

The latest forecasts from Treasury have the NZ$18.4 billion deficit last year falling to NZ$12.1 billion deficit in the current year to June 30, 2012 (it had been forecast in October last year to be only a NZ$10.8 billion deficit), before falling again to NZ$5.6 billion in 2012/13, NZ$2.2 billion in 2013/14, and then finally a NZ$370 million surplus in 2014/15.