Our compilation of some of the key comments made in response to the 2018 Budget

Most comments in reaction to the Budget have given it the cautious thumbs-up.

What follows are some extracts from comments interest.co.nz has received from various interested parties.

PSA to Government: Budget shows promise but more courage needed

The Labour-led Government’s first Budget shows promise, the PSA says - but there are still many in the public and community service who will wonder when their turn is coming.

"Overall, we are heartened by this Government’s approach and the priorities it has signalled for the future," PSA National Secretaries Erin Polaczuk and Glenn Barclay say.

"In particular, we are happy to see money allocated for pay rises for some PSA members who have struggled for too long under a pointless resourcing and salary cap.

"It was good to hear Minister of Finance Grant Robertson specifically mention the need to rebuild public services to the standard that New Zealanders need and deserve."

The PSA especially welcomed the emphasis on frontline services, including:

- more probation officers, and a firm commitment to increasing prison capacity - which will make prisons safer for our members who work there, and allow them to carry out crucial rehabilitation work

- more staff for DOC and Customs

- specific allocations for remuneration in the Ministry of Justice, the Ministry of Social Development and social workers at Oranga Tamariki

- recognition in the form of extra cash for ministries that have struggled to do their work - DOC, MBIE, Courts, Ministry of Culture and Heritage, frontline housing services at MSD

- acknowledgement that frontline employment services at MBIE have been under pressure, and confirmation of more labour inspectors and more money for mediation services.

However, Barclay and Polaczuk say the Budget does not specifically address "10 years of pay freezes and generations of gender pay discrimination - both of which have hit PSA members hard".

Budget 2018 and business -  BusinessNZ reaction

BusinessNZ Chief Executive Kirk Hope said some of the big ticket items in the Budget would help support business growth.

"An investment of $28 billion over 10 years in Auckland transport will improve infrastructure in our largest city, helping support the ability of business to grow and employ more.

"Large investments, in the Provincial Growth Fund and the Green Investment Fund, will also support the ability of businesses to grow and innovate using new technologies.

"And the establishment of an R&D tax credit will boost the support available to businesses that need to invest in innovation to become more competitive."

Hope said other spending, including $3.9 million to counter major cyber threats or events, was well-placed to address business vulnerabilities such as cybercrime.

Other spending items, however, were less obviously positive for business.

"The Budget allows full tax deductibility for racing industry bloodstock. Full capital tax deductibility helps to increase investment in technology, capital and grow productivity, which is important for all businesses. Business believes capital deductibility should be available to all businesses and industries, not just racing.

"The Budget also announces a new unit to oversee councils’ consistency of compliance with the Resource Management Act. This may help address some of the RMA’s problems, however council inconsistency is not the only or most significant problem with the RMA. Business continues to seek fundamental reform to this Act rather than a new compliance unit or other marginal changes."

Budget 2018: Long on welfare, short on productivity, says EMA

"We are pleased to see a balanced budget being announced off the back of the strong economic fundamentals supporting the New Zealand economy. And naturally, we would expect a Labour-led Government to look to redistribute wealth as was announced in the social housing and health allocations in this budget," says Kim Campbell, CEO, EMA.

"From a business perspective, many of the big announcements have already been made, such as the tax incentives for research and development, the $28 billion transport package for Auckland over 10 years along with increases to the minimum wage, pay equity settlements and so forth.

"We note that $24 billion more expenditure is planned over the next four years as part of today’s announcement.

"However, the big question from this budget is how will this drive productivity?" says Campbell.

"The Government’s ability to deliver strong results does come off the back of rising corporate profits and subsequent tax take. If business confidence starts to turn, or we see a hunker down mentality where plans for growth and investment are shelved, where will this leave us? 

"For example, how resilient are we if another global financial crisis or natural disaster hits our economy?

"Also, one of the biggest issues on the mind of business is how the proposed changes to industrial relations will impact their operations. No one would disagree with wanting to build a more productive, more sustainable and more inclusive economy, but we are deeply concerned with how the various changes proposed for the workplace will enable this."

Campbell added that business would be wanting further clarity on the plan to introduce a legally binding emissions reduction target.

R&D businesses big winners from Budget 2018 – MYOB

The Labour-led coalition Government’s first budget has several positive initiatives that will support innovative businesses says accounting software provider MYOB.

“The big winners from Budget 2018 are businesses investing in research and development,” says MYOB New Zealand General Manager Carolyn Luey.

“It’s important that New Zealand’s economy moves up the value chain. We want to see more businesses involved in R&D because that delivers higher value jobs and more innovation.

“The government should be commended for its goal of lifting national R&D spending to 2% of GDP, up from 1.3% now. New Zealand cannot afford to fall behind, given the OECD average is 2.4%.

Budget 2018 puts $1 billion of operational funding forward for the R&D tax incentive, allowing businesses to claim 12.5 cents back for every dollar they spend on R&D. The incentive will be available for all businesses spending more than $100,000 on R&D.

“We would encourage all businesses who are involved in R&D to engage with the government’s consultation document currently out for feedback on how the tax incentive scheme should be designed,” says Luey. 

Cameron Bagrie, Bagrie Economics

The upshot:  Delivers on the social side of the ledger but short on specifics and a plan in terms of how we are going to transform the economy, independent economist Cameron Bagrie. 

"The 2018 Budget showed a strong commitment to fiscal responsibility as was to be expected.  The fiscal numbers are market friendly; rising surpluses and declining net debt (as a share of GDP).  Note that the Government has bumped up borrowing through Crown entities (from 0.5 to 2.2% of GDP).  If it wasn’t for this transfer the 20% debt target would have been missed, not that I think that would be an issue," he says.

"Treasury’s growth numbers look on the high side to me.  I’m not sure enough work has been done on the near-term impact or growth costs of transforming the economy and the economy is hitting capacity constraints too.  I think growth will average a tad below 3% which is slightly below Treasury but not materially so on the assumption we don’t get caught up in an offshore economic accident (which is a real risk when I look at the likes of Argentina and some emerging market economies). 

"The New Zealand economy has good momentum, but I do ponder how easy it will be for the economy and resources to transition.  Beyond the direct hit the agriculture and non-renewable sectors are taking, the economy has historically had big impetus provided by rising house and land prices which have fuelled spending.  Of course, surging house prices have also contributed to inequality.  Those sources of growth are disappearing, and they are non-trivial holes to fill.

"...Have we been under-investing?

"Central Government gross fixed capital formation (investment adjusted for asset sales) has averaged 2.6% of GDP since 1999; the average has been the same under both Governments.  So, we can’t really say one or other government has been under-investing or not.   Investment projects straddle the election cycle as they can be multi-year jobs.  This all misses the point anyway.  Investment quality should dominate the investment quantity.  A lot of the issues regarding the Government’s portfolio of assets likely reflects how they are managed. 

"The Government intends to broaden the scope and definitions by which progress is measured.  Traditional measures such as economic growth will remain important.  However, the 2019 Budget will be a Wellbeing Budget, which will report progress against a raft of measures that highlight the well-being of New Zealanders, the environment and communities.  What exactly that looks like remains uncertain.   

"...The research and development tax incentive are a hugely positive move.  As are the ring-fencing of property losses and work associated with the tax review.  We need better incentives to drive growth within the real economy.  Boosts to capital spending is timely as is seed capital for a more “green” economy.  Hopefully the Future of Work Commission comes out with some proactive recommendations. 

"However, the Budget doesn’t really provide a lot on the growth front.  Only $130 million of the much-heralded regional growth fund has been allocated.  We seem to be re-writing the rule-book on what promotes economic development too going by some of the initiatives that are being put under that category.

"Was there a clear plan elicited on how the economy is going to be transformed?  Or how to lift productivity?  Not really.  And on that basis, it’s hard to see what is going to turn business sentiment around which is being weighed down by uncertainty.  Business sentiment is not a great indicator anyway.  However, the longer it remains weak, the greater the risk much needed private sector investment across the economy is cancelled or put on hold." 

ASB economists' "quickview"

The new Labour-NZ First Government has effectively passed its first fiscal credibility test, ASB economists say.  

"The Budget and the healthy forecasts show that the Government is on target to achieve its fiscal targets.  In particular, the Budget shows that net debt is on track to fall below 20% by 2021/22.

"In part, Treasury’s slightly generous economic and tax revenue forecasts have helped the Government get there. However, we do agree with the general trends that the Budget forecasts provide and thus acknowledge that this Budget is a prudent one. 

"In terms of policy, there aren’t a lot of new initiatives to focus on.  Indeed, the main spending increases come in baseline increases for health, education and housing or “rebuilding critical public services” as the Government puts it. 

"Meanwhile, the wellbeing framework (that we thought would be an interesting sidebar to this Budget) has been effectively deferred to Budget 2019. In fact, the Government has already named it Budget 2019: the Wellbeing Budget.

"Interestingly, an announcement buried in the Fiscal Strategy Report may well go a long way to summarising the theme of this Budget.  Specifically, the Government is going to consult the public later this year on the creation of an Independent Fiscal Institution.  Such organisations already exist in the UK and Australia, for example.  They are generally set up to report independently on the sustainability and accuracy of fiscal policies announced by either governments or opposition parties.  And the creation of such an organisation may well be the lasting legacy of Budget 2018."

Chartered Accountants Australia and New Zealand

There are promising signs for business in the Budget, such as the increased support for R & D and investment in infrastructure and regional development, says Peter Vial, Chartered Accountants Australia and New Zealand’s Advocacy and Professional Standing Leader for New Zealand.

"However, business is built on confidence and certainty – and, for that, there are still some critical gaps in the foundations.

“I wonder whether the Budget is visionary in an economic sense, as well as a societal sense.”

Vial said there was is a vision for transformation in some important areas including reducing child poverty and supporting the most vulnerable members of our society.

“But in areas important for business it is not quite so clear. The focus on infrastructure investment and regional development is visionary, albeit lacking in detail. 

“Whether the Budget is transformational in terms of increasing productivity and encouraging innovation is less clear.”

 He said many of the gaps will only be filled once the Government has made a call on, for example, changes to tax settings, policies to boost business use of technology, further welfare reforms and on its full response to climate change. 

 “Before the Government can make those sorts of calls, it will need to consider the deliberations of the many external review committees it has set up.”

On the R&D changes, Vial said the devil will be in the detail of the rules.

“The key will be to ensure the Government’s subsidy is easy to access, targeted appropriately and spent wisely.

“The focus should be on encouraging incremental activity that would not have happened absent the support.

“The last R& D tax credit only lasted a year – being repealed by the then new National-led government in 2009.  This time the credit needs to have a longer run at succeeding.”

EY New Zealand's reaction

In the long-run our living standards depend on productivity and New Zealand’s productivity growth has lagged behind our competitors for at least 60 years, EY New Zealand Tax Policy Leader David Snell says.

"We can’t expect Finance Minister Grant Robertson to solve New Zealand’s productivity deficit in one bound. In turn, New Zealand’s ability to improve standard of living over time depends almost entirely on our ability to raise its output per worker.

He says Budget 2018 starts to flesh out that plan with:

• $1 billion over four years for the R&D incentive
• A tripartite “Future of Work Forum” between the Government, Business New Zealand and the Council of Trade Unions
• A Productivity Commission inquiry into technological change, disruption and the future of work; and
• $100 million into a Green Investment Fund.

"That’s a start but there’s much more still to do.  There could have been a stronger plan with a greater focus on skills and capital, with perhaps a lesser emphasis on fora and inquiries.

"The R&D incentive has been previously announced, with details currently out for consultation.  A well-designed incentive can lead to increased innovation activity and this commitment is a welcome one.  The crucial test will be seeing whether the R&D incentive in action leads to a stronger innovation eco-system, with real success stories to its credit in years to come. 

"Robertson’s right to hone in on the future of work.  More automation is on the horizon.  That’s productivity enhancing, while simultaneously empowering and threatening for workers.  The gig economy is leading to more short-term roles and rising numbers of contractors.  A productive economy needs a skilled workforce.

"On the other hand, is the tripartite government/labour/unions forum stepping “back to the future”?  And how will this body sit alongside the Tax Working Group, which already has strong union and business representation and an overlapping remit?

"Combined with the Productivity Commission inquiry, are we still at the stage of groping towards a plan for a plan?

"...Robertson’s confirmed 2018 will be the last traditional budget.  2019 will be a “Wellbeing Budget” based on broader measures of living standards.  Perhaps a move towards a more just economy rather than just the economy?"