Bud­get pru­dence needed Busi­ness

Aus­tralia’s job cre­ation pol­icy could af­fect NZ’s out­flow of work­ers — and even our res­i­den­tial hous­ing mar­ket

Weekend Herald - - News -

Re­cent Bud­get an­nounce­ments on both sides of the Tas­man clearly in­di­cate that the Aus­tralian Gov­ern­ment has had a bor­row and hope strat­egy, while our Fi­nance Ministers have taken a more pru­dent ap­proach.

The big ques­tion is whether Grant Robert­son, the new Labour Fi­nance Min­is­ter, will main­tain this pru­dent ap­proach when he de­liv­ers his first Bud­get on Thurs­day.

The first point to note in the ac­com­pa­ny­ing ta­ble is that the Aus­tralian Gov­ern­ment has had 10 con­sec­u­tive bud­get deficits and is fore­cast­ing a A$14.5 bil­lion ($15.66b) deficit for the June 2019 year. By con­trast, New Zealand has had four con­sec­u­tive bud­get sur­pluses. This trend is ex­pected to con­tinue un­less the Labour Gov­ern­ment adopts Aus­tralia’s bor­row and hope ap­proach.

The Aus­tralian Gov­ern­ment has had to­tal bud­get deficits of A$368.6b over the past decade, while the NZ Gov­ern­ment had deficits of $35.8b over the same pe­riod. The NZ deficit fig­ure would have been closer to $20b if it wasn’t for the huge costs as­so­ci­ated with the Christchurch earth­quakes.

Dur­ing this 10-year pe­riod, gross Aus­tralian Gov­ern­ment debt has blown out from just A$55.4b to A$533b, or from 4.7 per cent of GDP to 29.6 per cent. Mean­while, New Zealand’s gross Gov­ern­ment debt has in­creased from $31.4b to $84.1b, or from 16.6 per cent to 29.7 per cent of GDP. Al­though Gov­ern­ment debt has risen in this part of the world, it is still rel­a­tively low com­pared with other coun­tries. Ja­pan has a gross Gov­ern­ment debt to GDP ra­tio of 240 per cent and Greece 180 per cent.

The Aus­tralian Bud­get, de­liv­ered by Lib­eral Trea­surer Scott Mor­ri­son on Tues­day, was set against a back­drop of a gen­eral elec­tion in the first half of next year. As the Lib­eral/ Na­tional coali­tion has con­sis­tently trailed the op­po­si­tion par­ties in the opin­ion polls, this week’s Bud­get had an ob­vi­ous eye on the elec­tion.

Mor­ri­son blamed the global fi­nan­cial cri­sis for the rel­a­tively poor per­for­mance of the Aus­tralian econ­omy, which grew by only 12.8 per cent over the past five years while the New Zealand econ­omy ex­panded by 17.8 per cent over the same pe­riod.

Mor­ri­son told Par­lia­ment on Tues­day: “The Aus­tralian econ­omy is now pulling out of one of the tough­est pe­ri­ods we have faced in gen­er­a­tions. The global fi­nan­cial cri­sis was sig­nif­i­cant. But com­ing off our once in a hun­dred years min­ing boom had an even big­ger im­pact, rip­ping $80b out of our econ­omy.” He went on to say: “We are no longer bor­row­ing money to pay for every­day ex­pen­di­ture like wel­fare pay­ments. We have re­tained Aus­tralia’s in­ter­na­tional AAA credit rat­ing from all three agen­cies, one of only 10 coun­tries in the world to do so”.

The other AAA-rated coun­tries are Canada, Den­mark, Ger­many, Lux­em­bourg, the Nether­lands, Nor­way, Sin­ga­pore, Swe­den and Switzer­land. The United States has a Stan­dard & Poor’s AA+ rat­ing, while New Zealand has an AA rat­ing.

The Aus­tralian Bud­get state­ment was rea­son­ably up­beat on the do­mes­tic econ­omy. It stated: “Mo­men­tum in the Aus­tralian econ­omy strength­ened in the sec­ond half of 2017. This mo­men­tum is fore­cast to con­tinue [and] GDP is fore­cast to grow by a solid 2.75 per cent in 2017-18 and to ac­cel­er­ate fur­ther to 3 per cent growth in 2018-19 and 2019-20”.

An area of con­cern for New Zealand is the Aus­tralian Gov­ern­ment’s em­pha­sis on job cre­ation, which was cov­ered un­der the Bud­get speech head­line “the Turn­bull Gov­ern­ment is back­ing busi­ness to cre­ate more jobs”.

This could have an im­pact on our net mi­gra­tion fig­ures, as New Zealan­ders leave in large num­bers when there are job va­can­cies in Aus­tralia and re­turn home when em­ploy­ment op­por­tu­ni­ties are more at­trac­tive on this side of the Tas­man.

This trend is clearly il­lus­trated in the two right hand col­umns in the ac­com­pa­ny­ing ta­ble.

Our net mi­gra­tion loss to Aus­tralia peaked in 2011/12 and 2012/13 — at mi­nus 39,800 and mi­nus 31,246 re­spec­tively — as job cre­ation fell in

New Zealand and re­mained rel­a­tively ro­bust in Aus­tralia. The trend re­versed dra­mat­i­cally in the fol­low­ing two years and in 2014/15 we had a net mi­gra­tion loss of only 1200 to Aus­tralia as job cre­ation was rel­a­tively more ro­bust in New Zealand.

How­ever, there has been a pos­i­tive up­lift in job for­ma­tion across the Tas­man and the Turn­bull Gov­ern­ment is de­ter­mined to main­tain this mo­men­tum. If it can do so, New Zealand em­ploy­ers will have to raise wages to keep their work­ers from mov­ing to Aus­tralia.

The al­ter­na­tive is a large in­crease in net mi­gra­tion to Aus­tralia, a de­vel­op­ment that could have a neg­a­tive im­pact on our res­i­den­tial hous­ing mar­ket. In light of this, the New Zealand Bud­get is awaited with in­ter­est. In his last pre-Bud­get speech on May 1, Robert­son stated that his “Bud­get 2018 will take the first steps

to­wards this Coali­tion Gov­ern­ment’s plan for a trans­for­ma­tion of the New Zealand econ­omy”. Robert­son said the new Gov­ern­ment had sev­eral pri­or­i­ties, in­clud­ing:

● Mak­ing the econ­omy more pro­duc­tive, more sus­tain­able and more in­clu­sive.

● De­vel­op­ing a mod­ern econ­omy that is bet­ter equipped to take on the op­por­tu­ni­ties and meet the chal­lenges of a rapidly chang­ing world.

● Want­ing to raise public spend­ing and in­di­cat­ing that schools and hos­pi­tals are a ma­jor pri­or­ity.

● Mov­ing in­vest­ment into ed­u­ca­tion and train­ing for the work­force as well as putting more re­sources into trade de­vel­op­ment.

● In­creas­ing in­vest­ment in re­gional New Zealand and on a low-car­bon econ­omy.

Robert­son told his May 1 au­di­ence

that he is com­mit­ted to the Bud­get Re­spon­si­bil­ity Rules. He said: “That means Bud­get 2018 will de­liver a sur­plus. You will see it there on Bud­get Day. It is what we promised, and what we will be de­liv­er­ing, as a re­spon­si­ble Gov­ern­ment”.

Robert­son said the new Gov­ern­ment will fund its widerang­ing ini­tia­tives by slow­ing down the Crown’s debt re­pay­ment pro­gramme. This will free up funds to in­vest in in­fra­struc­ture, hous­ing and cor­rect­ing the so­cial deficits. In ad­di­tion, tax rev­enue has tracked higher than fore­cast in re­cent months be­cause of the strong do­mes­tic econ­omy. This gives Robert­son more fi­nanc­ing op­tions.

The Fi­nance Min­is­ter has em­pha­sised re­peat­edly that the Labour-led coali­tion was a trans­form­ing Gov­ern­ment but it would man­age the books re­spon­si­bly.

There is no doubt that the new Gov­ern­ment is for­tu­nate as it has come to power when the econ­omy is boom­ing, tax rev­enue is in­creas­ing and the Bud­get sur­plus is track­ing higher. The Fi­nan­cial State­ments of the Gov­ern­ment of New Zealand for the nine months to March 31, 2018 showed that tax rev­enue was 1.9 per cent higher than ex­pected and the Crown had a sur­plus of $3.3b for the nine-month pe­riod, com­pared with a fore­cast sur­plus of $2.4b.

This pos­i­tive trend should con­tinue, as the Trea­sury is fore­cast­ing NZ GDP growth of 3.6 per cent for the June 2019 year, com­pared with Aus­tralia’s 3.0 per cent fore­cast.

Fi­nance Min­is­ter Robert­son has the world at his feet and Tues­day’s Bud­get will give us a strong in­di­ca­tion whether he can take ad­van­tage of this while still re­port­ing a Bud­get sur­plus. How­ever, we should also keep an eye

on Aus­tralian de­vel­op­ments be­cause a con­tin­u­ing surge in job cre­ation across the Tas­man could lead to an out­flow of work­ers from New Zealand with a po­ten­tially large im­pact on the do­mes­tic hous­ing mar­ket.

The good news is that the Aus­tralian econ­omy isn’t quite there as far as job cre­ation is con­cerned, as it is still re­liant on part-time work for­ma­tion, which won’t at­tract New Zealan­ders across the Tas­man. For ex­am­ple, 40 per cent of the 845,000 new jobs in Aus­tralia over the past three years have been part-time, while only 10 per cent of the 262,000 new jobs in New Zealand have been part-time. New Zealand is still in the driver’s seat as far as Aus­tralasian eco­nomic growth is con­cerned, but Aus­tralia is catch­ing up.

Brian Gaynor is an ex­ec­u­tive

direc­tor of Mil­ford As­set Man­age­ment.

Pic­ture: Bloomberg / Her­ald graphic Photo / Bloomberg

The Aus­tralian Bud­get, de­liv­ered by Lib­eral Trea­surer Scott Mor­ri­son on Tues­day, was set against a back­drop of a gen­eral elec­tion next year.

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