Trick is in ensuring growth is no illusion

Business leaders have praised the Budget for its much- promised return to surplus, but warn that it relies heavily on the magic of economic growth.

This year’s Budget confirmed a surplus of $ 372 million next year, with growing surpluses to come.

It saw a slight loosening of the purse strings, with family- focused spending at the forefront in an election year.

‘‘ The magic in forecast growth PwC corporate Nightingale said.

‘‘ The trick is making sure the magic is real.’’ He said sensible fiscal management should help bring that to fruition.

Businesses would welcome extra funding for science and innovation, and further reductions in ACC Budget 2014 is the of the economy,’’ tax leader Geof levies of $ 480m in 2016, he said.

He praised moves to allow tax deductions for previously nondeductible ‘‘ blackhole’’ research and development spending.

Overall, new operating spending will rise from $ 1 billion this year to $ 1.5b in 2015, and an extra 2 per cent each year after that.

Westpac economists said it was surprising to see a notable increase in the spending allowance with relatively few initiatives to improve revenue.

Instead, the spending would be funded by sacrificing larger surpluses in later years.

‘‘ The additional spending will provide a slight boost to GDP growth and increases the pressure for higher interest rates, though only marginally so,’’ Westpac said.

Much of the extra money is aimed at social causes, including an extension to the paid parental leave scheme, free GP visits for under- 13s and more early- childhood funding.

Deloitte chief executive Thomas Pippos approved of the targeted spending, saying it would help boost productivity and workforce participation.

He said even the most uncharitable should see the Budget as a success in that it was ‘‘ not about the anticipated surplus, but about the journey’’.

He compared it with Australia, which was looking at record deficits, tax increases and expenditure cuts to help rein in a A$ 50b ( NZ$ 54b) deficit announced on Tuesday.

‘‘ Budget 2014 may not win the Government re- election, but it certainly won’t lose it for them either,’’ Pippos said.

EY tax partner Aaron Quintal suggested the Government had delivered a ‘‘ pop song Budget for a rock star economy’’.

‘‘ This Budget didn’t disappoint because we got exactly what we expected; more of the same,’’ he said. ‘‘ This is not a Budget that will change anyone’s opinion of the Government, be they friend or foe.’’

Quintal said the ‘‘ wafer- thin’’ surplus forecast was not really a goal in its own right:

‘‘ It is a tool to achieve the Government’s key long- term goal of getting net Crown debt back down to under 20 per cent of GDP.’’

He said the Government would be focused on rebuilding that buffer. ‘‘ If the economy does better than is expected over the next few years, that extra money will go back to repaying lenders well before there is any sniff of tax cuts,’’ he said.

Standard & Poor’s said the Budget would have no immediate effect on the ratings and outlook for New Zealand. The global ratings agency said it expected the Government to remain committed to near- term operating surpluses and, in the medium term, reducing debt.