Budget 2017 a missed opportunity, says NZIER

25 May 2017

New Zealand Institute of Economic Research (Inc)
Media release, 25 May 2017
For immediate release

“We see Budget 2017 as a continuation of fiscal prudence, which is sensible”, NZIER’s Senior Economist Christina Leung says. “But we would have liked to have seen more ambition, given the strength of the government’s books”.

There’s welcome news for lower- to middle-income earners…

Budget 2017 has delivered a few sweeteners for everyone in the form of a lift in tax brackets and increase in some tax credits under Working For Families, as well as an increase in the Accommodation Supplement. This is mainly a nod to the lower to middle class households.

“This will help the government show that it is trying to share the benefits of New Zealand’s recent growth around a little, which is a savvy move in an election year” Leung commented.

…and a decent chunk of long-overdue pump-priming

The Government has announced an $11b increase in Crown infrastructure spending, $4b of which has been allocated including the following:

  • Rebuild of State Highway 1 in Kaikoura ($812m)
  • Light rail for Auckland; first stage of City Rail Link ($436m)
  • KiwiRail investment ($450m) and upgrade to Wellington’s commuter rail ($98m)
  • More schools ($392m), more hospitals ($150m) and more prisons ($763m)
  • Release of Crown land for housing development ($100m)
  • Water storage in regional NZ ($63m).

A further $4.84 billion in capital spending for State Highways will come from the National Land Transport fund.

“This infrastructure spending is welcome, but is mainly a catch up after years of under-investment in the face of strong population growth. Getting the spending balance right between boosting Auckland’s infrastructure and supporting our regional economies will be vital”, Leung said.  

Social spending numbers look big, but are less impressive on a per capita basis after adjusting for inflation

Government spending on core functions such as education, health and law and order, while increasing in nominal terms, is projected to fall behind after we take into account inflation and population growth. While these declines in real per capita spending could be one way of helping New Zealand prepare for the long-term challenges from an ageing population, the effective cuts may have a negative impact on the level of service received across these core functions in the future.

NZIER and Victoria University of Wellington, part-funded by NZIER’s Public Good Research, have also released a detailed analysis of Budget 2017 spending on a per capita basis. This analysis will be available on our website from 26 May.

A missed opportunity?

Overall, we consider Budget 2017 a prudent and economically unremarkable budget. But it’s a politically savvy one. It is likely to be a strategic move to set itself apart from the Left’s bigger-spending plans. Finance Minister Joyce has hinted that while the focus remains on reducing Government debt, the National Government has room to reassess its spending plans next year. We hope this comes to pass, sooner rather than later.
“We can understand the Government wants to be prudent with its spending in case of unexpected events such as another natural disaster. The trade-off, however, is that an overly cautious approach could hold the New Zealand economy back over the coming years”.
“In that respect, we see Budget 2017 as a missed opportunity to have been bolder”, Leung said.  

For further information please contact:
Christina Leung
Senior Economist, Head of Membership Services
021 992 985

Go Back