BUDGET 2012: Books in slightly better shape than expected

Crown books are in a slightly better shape than expected, Budget 2012 reveals.

That can count as a small surprise as the government continues to run a 'zero budget' and well-known return-to-surplus by 2014/15 goal.  

The operating deficit for the financial year almost over (2011/12) is expected to come in at $8.4 billion - better than the $12.1 billion forecast in the Budget Policy Statement in February.

That's thanks to lower-than-expected government spending and a delay in some expenses, such as earthquake costs.

The forecast deficit falls to $7.9 billion in 2012/13 and $2 billion in 2013/14, before reaching the much vaunted surplus of $197 million in 2014/15.

Despite sticking with a zero budget to ensure that surplus is met, government has freed up $4.4 billion to spend on  "high priority areas" over the next four years.

Health services get the biggest cash injection, with $1.5 billion of extra money. Science and innovation, education and welfare are the other big gainers from the new operating spending.

But a zero budget does not mean zero growth. Forecasts show economic growth will average about 3% a year over the next four years, with 154,000 net new jobs being created.

Finance Minister Bill English says the government has freed up $4.4 billion to spend on "higher priority" areas, with significantly more money allocated to health services ($1.5 billion of extra money) and science and innovation.

Although speculated, there was no wildcard tax announcement.

Three tax credits will be slashed, including the income-under-$9,880 tax credit, the childcare and housekeeper tax credit and the tax credit for the active income on children. Removing these will save $117 million over the next four years.

Tax loopholes will be closed around livestock and mixed-use assets - expected to reverse an estimated $184 million fall in revenue (from livestock changes) and  save $109 million over four years (mixed-use asset changes).

Government is also throwing $78.4 million at Inland Revenue to help it toughen up on its audit and compliance functions. This is expected to have a net $345.4 million positive impact on the operating balance over the next four years.

Two ambiguous MED funds have been cancelled - the Enterprising Partnerships Fund and the Transformational Initiatives Fund - which is expected to save $26.1 million over the next four years.

But two new funds have emerged in their place.

The Future Investment Fund has been set up to spend the $5 billion - $7 billion raised from selling stakes in major state-owned enterprises on modern infrastructure.

And a new Justice Sector Fund has also been set up, with $87 million has been reprioritised towards it. It will allow money saved (from the justice secor's annual $3.8 billion budget) in one justice sector agency to be used in another.

By the numbers: Budget forecasts

• Budget forecasts point to a fiscal surplus in 2014/15 of $197 million.
• Budget forecasts show an operating deficit before gains and losses of $8.4 billion in 2011/12, falling to $7.9 billion in 2012/13 and $2 billion in 2013/14.
• Net Crown debt to remain squeezed below 30% of GDP. It is forecast to peak at 28.7% of GDP in 2013/14 before the government returns to surplus and starts reducing debt.
• Operating allowance confirmed to remain at $800 million for 2013/14 and $1.2 billion in 2014/15.
• Total net new government spending of $26.5 million over the next four years, compared with a planned new operating allowance of $800 million a year.
• Budget forecasts also show economic growth pickingg up from 2% this calendar year to more than 3% in 2014 and 2015.
• Treasury expects a further 154,000 New Zealanders to gain work over the next four years.

Remaining on track to budget surplus in 2014/15
Finance Minister Bill English has affirmed the government's commitment to the well-known goal of returning to surplus in 2014/15.

Budget forecasts show a fiscal surplus of $197 million in 2014/15, despite a $1.2 billion deterioration in the fiscal outlook for that year since the Budget Policy Statement in February.

"New Zealand will then be one of the few developed countries not running deficits and increasing debt," says Mr English.

"Getting back to surplus is one of the most important contributions the government can make to increasing genuine national savings and building a more competitive economy.

"It will reduce upwards pressure on interest and exchange rates. It will stop our debt rising and allow us to start reducing it."

Revenue initiatives include:
- Increasing tobacco excise by 10%-a-year on January 1 in each of the next four years ($528 million over four years).
- Increasing tax compliance activity, debt collection and following up on unfiled returns ($423.8 million gross savings over four years)
- Tightening the tax deductability rules for mixed-used assets ($184 million over four years)
- Removing three tax credits ($117.1 million over four years)

Investing $4.42 billion in new spending initiatives

New spending initiatives  worth $4.42 billion over the next four years will be paid for by $4.39 billion in savings and new revenue initiatives.

The biggest gainers from new spending initiatives are health services, education, welfare reform and science and innovation.

Health receives largest increase in spending

Public health services receive the largest increase in government spending in the Budget, allocated an extra $1.5 billion over the next four years. This includes $435 million for new initiatives and cost pressures in 2012/13.

This is made up of $358 million in new money for health, $47 million of savings and reallocation from under-spent areas to higher priority frontline services  and $30 million from drugs coming off patent.

"Despite tight financial times, the government is spending $14.12 billion in 2012/13 on health - the biggest investment ever," Health Minister Tony Ryall says.