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16 May 2014

The 2014 Budget

The New Zealand government has delivered the 2014 Budget, with a focus on families and the first promise of surplus since 2008. Finance Minister Bill English says continued strong economic growth will see a small budget surplus of $372 million next year, forecast to reach $3.5 billion in four years time. While the opposition has labelled the budget a fraud, the business sector is calling it a triumph.

This is a family friendly budget with few surprises, light years away from the severe austerity of the Australian budget. A $500 million family package is the budget centrepiece, including tax credits for families, extended paid parental leave, and free doctor visits for all children under 13. The ACC are also on track to deliver more cuts in levies, including a possible $130 cut in the levy for private vehicles.

Paid parental leave will extend from 14 to 18 weeks, with eligibility also expanded to cover seasonal workers and those who have recently changed jobs. Parental tax credit is being raised from $150 a week to $220 a week, with the payment period also extended from the first eight weeks of a child's life to the first ten weeks. With a total of $12.8 billion also targeted at the education sector, this is a family friendly budget first and foremost.

If the budget figures are anything to go by, the New Zealand economy is running in stark contrast to Australia, with no massive cuts on the drawing board and growth forecast at an average rate of 2.8 percent over the next four years. Growth will peak at 4 percent in the year to March 2015, with ongoing economic expansion providing the possibility of future tax cuts and additional spending in coming years.

Core crown expenses have also fallen, from 35 percent in 2010/11 to 31 percent of GDP in 2013/14. This figure is expected to drop even more in future years, with expenses forecast at 30 percent of GDP by 2016/17. "Spending restraint and a growing economy have led to a remarkable turnaround in the books," said Mr English, adding the government is in a position to consider "modest tax reductions in future years."

Not everyone is happy, however, with Labour leader David Cunliffe saying "It's a budget of low expectations and easy cynicism... It's an election year stunt, all smoke and mirrors and a few cosmetic changes." Greens co-leader Russel Norman has also come out against the budget, calling the surplus a fiction and saying the budget does nothing for children living in poverty or struggling first-home buyers.

The New Zealand budget was certainly low on surprises, and was even dropped as the lead story from a major news website in place of a story about a cat saving a boy from a dog. However, there has been praise in some quarters, with BusinessNZ chief executive Phil O'Reilly applauding the government for delivering on all its key objectives.

"Returning to surplus this year only a short time after the global financial crisis and the Christchurch earthquakes is a sound achievement... Businesses want an environment where government spending is both restrained and appropriately targeted, and where policies support competitive New Zealand enterprises – the budget helps towards delivering those outcomes." said O'Reilly.