Aaron Quintal: Child poverty unexpected focus of Budget

Child poverty can lead to lost output, and increased health, welfare and justice spending.

Could business have expected more from a Budget labelled by Finance Minister Bill English as "a plan that's working"?

The focus of Budget 2015 was, unexpectedly, on addressing child poverty. After days of talking down the prospect of significant measures in this area, English's Budget turned out to have child poverty at its heart.

The money spent will not be enough to please everyone but the scale and nature of the problem means no single Budget could hope to make a significant impact.

This move, however, will start to turn the tide against an issue that has long-term social and economic costs, not just for those caught in poverty but for the whole country through lost output, and increased health, welfare and justice spending as children from dysfunctional homes grow to be dysfunctional adults.

The plan for business is less clear. The forecast for the economy remains upbeat. Economic growth is expected to average 2.8 per cent over the next four years. This is strong growth by New Zealand standards and, what's more, it is not driving inflation which this year is at a staggeringly low 0.1 per cent.

The Government has taken the view that the best it can hope to do is get out of the road and let business get on with it. If that is the plan, there is still plenty of room to move around reducing red-tape and compliance costs for business, whether it is tax administration, employment law or the Resource Management Act.

The elusive surplus has continued to elude the Government, which surprised no-one. Treasury was saying last year there would be another deficit this year.

What will concern the Government is that the forecast surplus for next year also looks wafer thin, at $176 million. With total core Crown expenses of $74.9 billion, it does not take much movement on either the revenue or expense side of the accounts for $176 million to disappear in the rounding.

Achieving even this modest surplus relies on creating 150,000 new jobs by 2019, on top of the 170,000 new jobs created in the past four years, to bring unemployment down to 4.5 per cent and raise the average wage to $63,000 a year.

These new jobs and wage increases flow through to increased tax revenues and less welfare spending that underpins the surplus. If the jobs don't come, nor will the surplus.

The Government cannot magic jobs into existence but it can provide support and set the right environment for business to operate in.

To help create these jobs, there is some new spending on innovation - another $80 million over four years for R&D growth grants (signalled before the election) and $25 million over three years to support the establishment of privately-led Regional Research Institutes, which are intended to bring innovation and jobs to the provinces.

Much of the spending in the business sector seems reactive and piecemeal. If there is a plan behind this spending, it is well hidden. It is not a plan that creates a vision to unite the business sector. To share the pie and start to address child poverty issues, first we need to ensure the pie keeps growing.

• Aaron Quintal is a tax partner with EY.