Editorial: Modest dividends from sustained growth

Finance Minister Steven Joyce, right, and Prime Minister Bill English. Photo / Mark Mitchell

This was always going to be an infrastructure Budget. With the population growing on record immigration the public was demanding more investment in infrastructure and yesterday that was delivered.

But if anyone was hoping for a new project, some significant new dimension to the country's infrastructure, they were disappointed. Steven Joyce is using most of the nearly $3 billion surplus in the coming year for familiar improvements to railways ($980 million) and highways ($812 million), along with new capital spending on prisons, schools, health services, housing and defence.

The Finance Minister proudly told Parliament, "The Government's capital spend over the next four years uses virtually all the cash generated from the operating surpluses. When added together, core Crown residual cash over the forecast period is exactly nil."

In other words, he is telling Opposition parties, the large and growing surpluses the Treasury has forecast have been fully allocated.

There is no money for their election promises unless they are willing to tell the electorate which of the Government's projects they would cut.

The surpluses are projected to rise to $7.2 billion by the fiscal year 2020-21, when net government debt is projected to fall below 20 per cent of GDP.

The Government sees no reason to reduce debt faster as a safeguard against economic or seismic shocks, though it is raising the Earthquake Commission's premium on household insurance from November to rebuild the National Disaster Fund over 10 years.

It will be 2025 before the Government will have its debt down to $10 billion-15 billion, comparable with the very low level it inherited from Labour.

For the first time in a long while a finance minister has been able to report an improvement in not just the internal (government) debt but the external debt, which includes the private sector's trade balance and payments.

Joyce noted the external debt has dropped from 82 per cent of GDP in 2008 to 60 per cent today, which is good news indeed if it reflects lasting improvements in the value of exports and tourism.

But popular attention focuses naturally on the Budget's income tax reductions in the form of higher thresholds for all but the highest bracket.

All taxpayers gain a little from lifting the income levels qualifying for the lower rates but the Government is giving a greater boost to the lower paid with dependent children through tax credits.

The low paid without children are not so lucky, losing their tax credit because, the minister said, only half of the eligible have been claiming it.

Accommodation supplements, too, are to be increased, reflecting higher rents, which in turn reflect measures the Government has taken to cool the housing market. Accommodation supplements go to landlords who are now looking at lower capital gains.

Joyce had a good story to tell in his first Budget but elections are not won on what has happened, they are won by the party that seems to offer the best for the future.

The Government has delivered some modest dividends from its fiscal caution and five years of solid economic growth. Now it needs to convince the country to hold this course.