CTU Report on Budget 2011

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This is a brief report on some of the Budget highlights. There has not yet been an opportunity to analyse all aspects of the Budget so this report does not attempt to provide a full commentary. You will see that funding increases are often stated as over 4 years and we also need to factor in demographic changes as well as an inflation adjustment before we can assess real increases.

Key Points

  • The Budget will now return to surplus in 2014/15 – a year sooner than in the December forecast and debt will begin to reduce in the following year.
  • This is paid for by cuts in spending in most areas of government except that Health, Justice and Education get increases, but not enough to keep up with rising costs and population.
  • Government expenditure is essentially flat for the next two years, so is a real cut after inflation – expected to be 3.1 percent in the year to March 2012 – and an end to government stimulus of the economy.
  • Treasury expects unemployment to still be at 5.7 percent in March 2012.
  • Minimum compulsory employee and employer contributions to KiwiSaver will increase from 2 to 3 percent in 2013. From July 2012 the Member Tax Credit for employee contributions will be halved to 50 cents in the dollar, and the annual maximum credit also halved to $521.43.
  • The abatement threshold for Working for Families will be lowered by $1,827 to $35,000 and the abatement rate will be increased from 20 to 25 cents in the dollar. Then changes will be made over four adjustments between 2012 and 2018,
  • It is confirmed that the electricity companies, Air New Zealand and Solid Energy will be partially privatised over the next five years if the government wins the election, raising between $5-7bn in the period 2012-17.
  • The cost of the Canterbury earthquakes is being estimated at $8.8bn – $3.3bn of that in EQC and ACC costs and $5.5bn direct costs to the government.  A Canterbury Earthquake Kiwi Bond will be created to fund some portion of this cost.
  • Restrictions to the student loan scheme affect part time students and students over 55.
  • Health services are underfunded by approximately $110 million.
  • Additional funding in early childhood education will only match population growth needs and inflation adjustments 
  • The 2.9 percent increase in schools operation grant funding is below inflation.
  • No plan for skills development and training to raise workforce skills and training or literacy and numeracy levels.
  • Extra funding in housing for building but targeted to the private sector.
  • An increase in tertiary funding in industry is targeted at PTEs. 

Download a PDF of the full report here.