Aaron Quintal and David Snell: Transport issues still waiting

The Government is having to spend more than $2 billion just to stand still rather than forge ahead and pay down debt.

Infrastructure spending takes a back seat to the priority of paying down debt, write Aaron Quintal and David Snell

Budget 2016 is a budget driven by cost pressures: $300 million to allow Defence to keep providing what is being asked of it, $300 million to Police, of which $280 million is to fund pay increases for existing staff, and $1.6 billion to allow DHBs to meet population growth.

The Government has to spend this just to stand still. It doesn't leave a lot of room to undertake genuinely new spending while still maintaining a surplus and paying down debt. And, as Bill English has made clear, paying down debt is a priority.

The small surpluses to date have been "operating" surpluses, which means expenses (including depreciation of assets) have been less than revenue. The Government has still had to borrow to meet its demands for cash expenditure, so even in surplus its debt has continued to grow. From 2018/19 the Government anticipates cash surpluses to finally allow it to make a real dent in paying back debt.

The focus of new spending in Budget 2016 is a series of 25 initiatives called Innovative New Zealand, to which the Government is committing $761 million over the next four years.

The aim is to boost science and innovation and upskill New Zealand workers. Of this package, $257 million goes to tertiary funding, including funding a further 5500 apprenticeships by 2020. An additional $411 million is for science and innovation spending, bringing the Government's annual science spend to $1.6 billion by 2020.

The Government is trying to ensure the regions are not left behind, not just by offering Aucklanders $5000 to move there, but $94 million of the Innovative New Zealand spending goes to the Government's Regional Growth Programme and will develop more regional research institutes, an initiative of Budget 2015.

Hopefully the money in the new package -- combined with a clear focus on science, engineering and agriculture -- can create the right signals and the right opportunities for New Zealanders to upskill for the changing work environment.

The infrastructure story is less clear. With Auckland's entire population calling for an infrastructure spend-up, the chances are that a new IRD computer system isn't at the top of their wish list. But, in dollar terms, that's the centrepiece of the Government's $2.1 billion public infrastructure package.

At least $1.2 billion has been committed to modernising Inland Revenue's creaking systems over the next four years. The Government's setting out a marker for the next 20 to 30 years of tax administration. It aims to make it easier for all New Zealanders to meet their tax obligations.

Overhauling the tax IT systems is the right thing to do -- for taxpayers, the Government and, in the long run, Inland Revenue itself. The world has moved on from manual processing and clunky mainframes. Inland Revenue will look very different in five years' time. Hopefully, the new system will mean we have less need to engage with the taxman, to fill in forms and to repeatedly supply the same irrelevant detail.

What isn't spelt out in the headlines is the impact on today's Inland Revenue workers. The $1.2 billion isn't all new money. Hidden within the Budget's fine print is $284 million of so-called "savings" from Inland Revenue's current planned expenditure.

In other words, cuts. And cuts of that scale have to mean job losses. The cuts start from the current year, ramping up in 2019/20. At 30 June 2015 Inland Revenue employed 5820 staff. The scale of savings the Government is looking for mean the cuts must be widespread. It is likely people in the mails centres, data processing, call centre and investigations staff will bear the brunt of the shift. People in those roles will be worried about their futures.

This is more money that the Government has to spend, just to stand still.

The new system should crackdown on tax evasion. Starting from 2018/19, Inland Revenue predicts it will raise an extra $250 million, not from law changes but simply from better enforcing the current rules.

It had better work. English and Key have already booked the money in their quest for lower government debt. Now that's real Kiwi innovation for you.

On transport infrastructure, the focus is on the regions; with $115 million to be spent on regional roads and $190 million for KiwiRail to operate its existing rail network. This spending doesn't reduce the costs the whole country bears each year from having people and goods sitting on clogged Auckland arterial roads and motorways throughout the day.

Despite hopes there might be some good news on housing, the reality is there is little the Government can do to solve Auckland's housing problems in the short term.

It has freed up both surplus land and $100 million of money in the current Budget to move things along, but this will make only a small impact on Auckland's housing supply, given building consents are already running at $4.1 billion per year.

Perhaps the bigger impact will come from the National Policy Statement on Urban Development the Minister of Finance announced which will, in his words, "direct councils to allow more housing development where necessary and to measure the impact of their decisions on house prices".

This should be taken as a shot across the bows of the Auckland Council: if the finalised unitary plan does not look like addressing Auckland house supply issues, the Government will step in.

Aaron Quintal is a partner at EY, David Snell is an EY executive director.