Opinion: Budget fires election opening salvoes

Biosecurity staff check shrubs and trees for myrtle rust. Biosecurity and border protection won extra funding in Steven Joyce's first Budget as the new Minister of Finance.

Opinion: Steven Joyce's first Budget fires the first shot in an election year spend up.

On Budget day, May 25, the new Minister of Finance dropped hints he was keeping some ammunition in reserve, and no doubt his political rivals will pepper voters with their own barrage of spending promises in the coming months.

Solid economic growth and fiscal discipline has turned around a 'decade of deficits' forecast in 2008 to surpluses, which are projected to strengthen over the coming years. The forecast surplus for the current 2016/17 year is $1.6 billion, rising to $2.9 billion for 2017/18 and then growing steadily to $7.2 billion in 2020/21.

Federated Farmers Industry Group Manager Nick Clark.

The Government has four fiscal priorities:

•Maintaining rising operating surpluses;

•Reducing net debt to around 10-15 per cent of GDP by 2025;

•If economic and fiscal conditions allow, beginning to reduce income taxes;

•Using any further fiscal headroom to reduce debt.

These four priorities are consistent with Federated Farmers' fiscal policy position. In addition, we believe that Government spending should be contained so it reduces to below 30 per cent of GDP (now achieved at around 29 per cent) and it should be focused on things that will improve productivity and competitiveness and provide strong value for money.

In terms of 'new initiatives' the Budget is providing, over the next four years there will be an additional net $8.6 billion in operating spending initiatives and a net $4.0 billion in capital spending initiatives.

Operating spending will grow steadily over the next four years, from $77.5 billion in 2016/17 to $89.2 billion in 2020/21. This is almost the same rate of growth as nominal GDP.

It's hard to quibble with the Budget's focus on spending on public services, social investment, and infrastructure. It's also hard to take exception to tax and spending initiatives targeted at lower and middle income families.

However, Federated Farmers is disappointed there was no movement in the threshold of the top rate of personal income tax. Too many taxpayers will continue suffering the effect of several years of fiscal drag. We would also have liked to have seen a reduction in the company tax rate although this is less important to us than personal income tax.

Included is a welcome boost of $18.4 million of operating funding over four years to further strengthen the biosecurity system and protect our borders.

Part of the new funding will be used to manage biosecurity risk off-shore so fewer pests and diseases make it to New Zealand. Import Health Standards (IHS) will be reviewed to ensure the rules around importing goods are strong and up to date.

The money will also be used to accelerate the development and uptake of new tools to detect and eradicate pests, including sonar scanning of vessel hulls and automatic acoustic traps for use in pest surveillance and eradication.

As well as the money for biosecurity, there is additional spending for irrigation and trade facilitation. These are all important priorities for farmers.

We welcome an increase in science and innovation spending but would have preferred more emphasis on building our science capability across the country, particularly in biological and environmental sciences, rather than going to companies for commercialisation.

MFAT gets more funding for trade negotiations and international presence, and there is also more funding for tourism infrastructure, transport and police, all of which are welcomed.

Looking ahead, surpluses are forecast to grow. As was the experience from 2005 to 2008 the temptation to spend more will grow in tandem.

Whoever wins the September election will inherit a healthy set of books but they could easily be squandered if there is a spending spree followed by a shock (as happened in 2008).

The temptation to spend up needs to be guarded against. Better perhaps for the Government to have moved more on taxes so reducing the headroom for even more lavish spending promises!