Academics share their views on Budget 2011

25 May 2011

The Budget unveiled by the Government last week is the sort we won’t be able to afford in the future, a senior commercial law lecturer from the Business School has warned.

Chye-Ching Huang says current – and perhaps optimistic – projections are for a return to surplus in 2014 or 2015, but believes this will be a brief respite.

“Underlying trends, such as poor growth and demographic changes, will take hold,” she explains. “At this rate, deficits will return over the medium-term, with net public GDP exceeding 200% of GDP by 2050.

“We have a limited window to invest in transformative measures to boost growth before such measures become unaffordable, and to address hard tax and spending decisions in a measured way before more drastic responses are forced upon us.”

In that context, Chye-Ching says, the Budget has some positive elements but isn’t bold or coherent enough.

“Partial privatisation of SOEs could be an opportunity to manage the Government’s balance sheet more strategically to support growth, but without clarity about the aims of privatisation or details on how proceeds will be used, such a policy could fail to deliver to its potential,” she says.

Mixed messages on KiwiSaver could offset any benefits that a public float of SOE shares might have in encouraging a savings and ownership culture.

“To further encourage investment in the productive economy while getting public debt under control, difficult spending and revenue measures must be brought back onto the table,” she says. “Further examination of Working for Families and student loans, the superannuation age and plugging the capital gains tax loophole are all examples of policies we cannot continue to ignore if big changes to the growth and public debt track are to be achieved.”

Another Business School academic, Associate Professor Susan St John of the Department of Economics, is concerned that children will be the big losers as a result of this Budget.

She says the Budget shows that, in its rush to get the economy on track, the Government has lost sight of the nation’s children, who are “collateral damage” of the changes to Working for Families.

“The reduction in the generosity of Working for Families overtime is very significant and displays a policy direction that is quite opposite to Australia’s,” she says. “The threshold for maximum family tax credit payments in Australia is already well above ours and continues to be inflation-adjusted, while ours will be cut in nominal terms and the rate of loss above the threshold increased,” Susan says.

“The real significance of the changes is that, unlike in Australia, there is now no commitment to improving the lot of families with children, so it reinforces the growing gap for families between Australia and New Zealand.”

Susan will be airing her views during a public seminar, “Reflecting on the May budgets, the recession and labour markets in New Zealand and Australia”, in Case Room 3 on Level 0 on Friday 27 May.

The seminar, featuring sociology expert Dr Ben Spies-Butcher who is visiting the Business School’s Retirement Policy and Research Centre from Macquarie University in Sydney, will look at the differences between Australia and New Zealand’s policies, and whether recent budgets are driving the two countries further apart or closer together.

The Business School’s Professor Tim Hazledine, Professor Craig Elliffe and Associate Professor Rhema Vaithianathan will appear alongside Susan in a panel discussion after the seminar.

Seminar: Reflecting on the May budgets, the recession and labour markets in New Zealand and Australia