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More fiscal pruning, tax loopholes in NZ government's Budget sights

Tuesday 1st May 2012

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Prime Minister John Key today confirmed the Cabinet has made decisions on further tax system tightening and pruning of government spending to allow it to achieve its target of a small Budget surplus in 2015.

"We don’t have the final forecasts through from Treasury yet, but we have enough headroom now to be sure that there will be a surplus in that year," Key told a lunchtime Business New Zealand audience in Wellington.

"It might not be the world’s biggest surplus, on current forecasts. But in 2014/15, for the first time since the global financial crisis and the worldwide recession, the government’s books will be back in the black,” he said.

"Over the next four years – what the Treasury calls the ‘forecast period’ – our new spending will be balanced out by a combination of savings and revenue initiatives," he said.

His comments follow last week's warning from Finance Minister Bill English that a worsening tax take and weak economic growth had punched a $1 billion hole in earlier Budget calculations, creating a forecast $640 million deficit in 2014/15.

Key hinted some of those extra savings would come from closing tax loopholes and tax-based financial assistance, along with potentially smaller new spends in key areas such as science and innovation, where new funds have been promised.

However, Key said a surplus was achievable "without any great dramas" by "doing things a little differently in a number of areas to maintain our focus on results and to save money."

"We will be better targeting financial assistance in a couple of areas, including through the tax system. There will be no changes, however, to Working for Families and KiwiSaver tax credits," Key said. Departmental contingency budgets would be shaved, and under-spends were being returned.

"But in keeping with the way we have done all of our Budgets, these changes will be moderate and considered," said Key, who sought to make a virtue of his government managing to run a tight spending policy over the last four years without becoming a government of "extremes."

Where Labour had added some $15 billion a year of new spending to the government books in its last four years in power, National had added just $750 million a year in its first four years.

"Spending the sort of money Labour did each year represented extremely poor discipline and an unwillingness to make the sort of trade-offs that most businesses and households in New Zealand make as a matter of routine."

The health sector would get the biggest new spending boost in this year's Budget, and savings in some areas would be reinvested in frontline services. Education would also get a "sizeable" increase, with any savings also ploughed back into the sector.

Initial costs associated with welfare reform were forecast to be "more than recouped over the forecast period through a lower welfare roll."

Efforts to improve repayment rates on student loans would continue, although loans would remain interest-free while students were in study, targeting a write-off rate of no more than 40 cents in the dollar, compared to 45 cents at present, and 49 cents before a recent push on repayments began.

"There will be some more base-broadening in the tax system, which has been well-signalled, and more investment in protecting and improving the integrity of the tax system," said Key, in a clear signal that further tax loopholes will be attacked.

Further detailed Budget announcements are scheduled before the Budget is delivered on May 24.

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