Trans-Tasman Budget Rivalry

This week’s Budget announcements in Australia and New Zealand have many similarities. Both budgets look to the future and returning to surplus. But if these budgets were a trans-Tasman game of rugby or netball what would the score be? And what would the fans and commentators be predicting for full time?

Of course, comparing our budgets is quite  unlike a sporting rivalry. Essentially, both countries are on the same team, as there are positive spin offs for the New Zealand economy when the Australian economy is performing well. But if such a contest was imagined, it would probably be seen as a fiercely fought game against a background of tough conditions. The commentators would probably note that the bigger team, Australia, while ahead by an impossibly large margin, was starting to tire and the pressure on its team was starting to build. By contrast, New Zealand would probably be looking like it was building momentum and  confidence. 

So what are the key themes from the two budgets? Let’s look at Australia first. 

The Australians have a national election in September 2013, which the Labour Government appears unlikely to win. This budget locks in spending well into the  next Government’s term. The opposition may support the spending initiatives but will not be happy with the revenue initiatives. It is possible that they will hold out to prevent these passing before the election.

The key issue appears to be a shortfall  in revenue where the Government is facing a reduction in forecast tax revenue of AUD60 billion over the four years to 2016. Australia has turned a budgeted surplus into a deficit of AUD19.4 billion this fiscal year and budgets a deficit of AUD18 billion in 2013/14. It projects a return to surplus of AUD800 million in 2015/16, which is referred to as a “statistical error” by one commentator.

Australia is also training for the future with headline expenditure initiatives of:

• AUD7.6 billion on new education funding
• AUD14.3 billion on disability care
• AUD24 billion on “nation-building” road and rail projects in Melbourne, Sydney and Brisbane.

But in an overall sense, it is a “do  nothing” budget which is long on promises but with no actual expenditure and with a number of revenue/saving initiatives that don’t look like they will achieve much. It seems that trying to hit up the corporate and high income earner sectors in a slowing economic environment will more likely motivate the players towards “tax planning” rather than playing harder.

By comparison, New Zealand has been playing into stormy head winds. With the background of the global recession and the Christchurch earthquakes, it’s been a tough time, but the Government is still forecasting a return to surplus earlier than expected.

The New Zealand Government has continued to deliver on its themes of:

• Responsibly managing its finances. While the projected surplus for 2014/15 still seems to be in the realms of a statistical error, the Minister must be comfortable with the margin of error as he has made cuts to ACC levies that were put off last year. As in Australia, spending on education, health and innovation has been headlined.
• Building a more productive and competitive economy. There is some additional funding for R&D, a $100 million growth package for business, tourism promotion and international students, but the Government is still hopeful that the economic recovery will deliver better employment outcomes.
• Delivering better public services. The Government has continued to look to the public service to deliver big results without getting additional funding. It will be good if we can see these outcomes without the continuing sense that the system  is breaking down. Continuous leaks do not suggest that the Government has got commitment to its results objectives.
• Supporting the rebuild of Christchurch. The cost of this has increased again, from $30 million to $40 million which is not unexpected. Of more concern is the sense that the Christchurch rebuild is the only game in town, and we do not have much momentum outside the stimulus that this is creating.

The team is thinking strategically, sticking to its game plan, is starting to enjoy the momentum and is in better spirits. But the spectators may not feel the team is delivering results quite yet.

Further enquiries, please contact:

Murray Brewer            
Grant Thornton New Zealand Partner, Tax
M +64 (0)9 308 2586
E murray.brewer@nz.gt.com