Joyce ‘can’t wait’ for first Budget

ANALYSIS: The French reckon that the more things change, the more they stay the same.

And when Finance Minister Steven Joyce rises to deliver his first Budget on May 25 there may be some changes in style.

But the clamp on new spending, which has been a feature of the past eight Bill English budgets, looks set to endure even with large and growing surpluses ahead.

The traditional theatrics will be there, though.

Yes, he says, he will get a haircut for the occasion ‘‘but I’m not sure anyone will notice’’.

And he will pose for the cameras as copies of the (bluebound) documents roll off the press.

‘‘Can’t wait, it’ll be exciting to press the go button.’’ But any other changes? ‘‘Perhaps the style of the speech might be a little bit different. I’m not planning on departing too much from the norm. It’ll sound like it came from me rather than Bill, I think.’’

He has much more cash to play with than his predecessor – now boss – English.

The latest Treasury update to the end of March showed a surplus of $1.5 billion – $1.3b better than expected.

Tax revenue is 7.3 per cent ahead of last year, thanks mainly to better business profits, and is tipped to continue into the 2017-18 fiscal year to help Joyce with his planning.

‘‘I wouldn’t say it’s big, but yes the surplus is growing. But we’ve got lots of demands on it,’’ he said in a pre-budget interview.

In December Treasury forecast a surplus of $3.3b. It’s a safe bet Joyce will better that.

Even so, and even in an election year, he is showing no signs of loosening the purse strings by boosting the $1.5b provision for new spending, although these things are not always black and white.

For instance he has decreed the settlement with aged care workers, worth $2b over four years, will be counted outside his new-spending cap, which is anchored close to $1.5b.

An operating allowance of ‘‘about that number’’ is a good discipline he says.

And he downplays the $1.5b surplus so far this financial year, saying $1.5b ‘‘doesn’t go very far’’.

‘‘The tax take is growing, and that’s good.’’

But whether there is a surplus or deficit ‘‘there are at least five claims on every dollar that you’ve got. That’s the balance that we’ve been working on’’.

The country was growing and there are demands for infrastructure and public services.

There will be an extra $1b for infrastructure next year, though damage from the Kaikoura quake will take a chunk of that. Overall new capital spending will be $11b over four years, taking total ‘‘capex’’ to $23b.

But with debt low at 23 per cent of gross domestic product, heading for 20 per cent by 2020, Joyce has set a new ultra-low target of 10-15 per cent of GDP by 2025.

Such a steep reduction serves to salt away forecast surpluses, but with debt already low by international standards Joyce has been urged to spend more now.

Why not beef up that infrastructure spending while interest rates are low and futureproof the economy by pre-loading on roads, rail and other essentials for a growing population?

Joyce says the Government is doing plenty on that front but also needs to build a buffer – a big one – against future shocks.

‘‘We have to invest in infrastructure, but the myth is we’re not among some commentators,’’ he says.

But he advocates a mediumterm debt target that creates room for shocks like the Canterbury quakes.

‘‘I don’t recall the same people (saying 10-15 per cent debt is too low) were saying that in 2010 and 2011 – and in fact the same people were saying we should raise a special tax to pay for x, y and z.’’

Reducing debt to 10-15 per cent

‘‘Perhaps the style of the speech might be a little bit different. I’m not planning on departing too much from the norm. It’ll sound like it came from me rather than Bill, I think.’’ Steven Joyce

of GDP leaves room to borrow another 15-20 per cent of GDP to respond to one or two sizeable shocks without exceeding the 30-35 per cent level at which credit ratings come under threat and borrowing more difficult.

At current levels 20 per cent of GDP is equivalent to about $50b.

He says the obvious potential shock is a Wellington earthquake and it was lucky for the country at large that last year’s quakes were not close to the capital.

‘‘I just don’t think in a country as geologically active as this one that we can be complacent about the need to have reserves, as shown by a debt target ... Some people have very short memories.’’

On the spending side, the Government has rolled out the usual pre-budget announcements including cash for tourism, screen productions and vulnerable children.

But the big reveal will be around the timing and scale of a promised ‘‘tax and family package’’.

Joyce has ruled out cuts to tax rates but the way is clear for a shift in the thresholds at which the various rates apply – with the emphasis on the 30 cent rate on income above $48,000.

But he is also tipped to boost other income support, including accommodation and Working for Families (WFF) as a way of delivering more at lower income levels.

He has kept mum on details, but said he wants to simplify WFF over time.

‘‘I don’t think we can do much this time. One of the concerns I have is that we have a lot of people that have no idea what they are entitled to.’’

Evidence for that were the number of companies offering to help file tax returns.

‘‘We do have a system whereby there are all sorts of tax credits if you take the right code and all this sort of carry on, or if people’s incomes change during the year,’’ he said.

Modernising IRD’S systems would help over time.

‘‘As much as possible you want to link people’s income to their effort so that they can see they get – and that was always one of the criticisms around WFF.’’

Given the sensitivity around housing, all eyes will be on any measures to ease affordability and supply.

But Joyce is ruling out any Budget move to grant the Reserve Bank the power to impose debt to income ratios – which would make it harder for first home buyers.

He has told the central bank to assess the cost and benefits of such a move.

But he rejects suggestions he ‘‘kicked it for touch’’ until after the election.

‘‘I am fully expecting them to get on with it. There is no delay this end ... I don’t think there’s any point playing politics on this sort of stuff.’’