16 May 2013

Housing to be centrepiece of Budget

12:04 pm on 16 May 2013

Initiatives aimed a curbing Auckland's runaway housing market are going to form a key part of Thursday's Budget.

Other policy initiatives are also likely to rein in house price rises elsewhere in the country, but Auckland is the worst affected.

Radio New Zealand's political editor Brent Edwards previews the 2013 Budget.

Finance Minister Bill English says 15%-a-year price rises in Auckland not only lock first-time home buyers out of the market; they are also bad for the economy.

Bill English says the Government will address housing supply.

Bill English says the Government will address housing supply. Photo: NATIONAL PARTY

Mr English warns an increase in spending on housing, a rise in business investment and the Canterbury rebuild after recent earthquakes are all putting pressure on the current account deficit - the measure of the difference between what the country earns and spends overseas.

Business investment is good for the economy, because it should eventually lead to greater economic growth. As well, the Government has no choice about rebuilding Christchurch - even though it is sucking up resources which would otherwise be invested in export industries.

But the Government can take steps to rein in the housing market, and Mr English says it will focus most on making more land available for housing. He expects its policies, which will increase house building, to slow house price rises within two to three years.

Opposition parties, though, are not so optimistic.

Russel Norman says important tools have already been ruled out.

Russel Norman says important tools have already been ruled out. Photo: GREEN PARTY

Labour Party leader David Shearer says unless the Government itself gets involved in building affordable homes, Bill English's policies are unlikely to have much impact.

Green Party co-leader Russel Norman agrees, pointing out the Government has already ruled out introducing a capital gains tax or changing monetary policy. He says both initiatives would help take the heat out of the housing market.

Much of what will be in the Budget on housing will likely flow from the housing accord the Government signed with the Auckland Council on 10 May. That needs legislation to pave the way for Auckland to fast-track the availability of land for urban development.

It is expected that bill and another couple will be passed through all stages under urgency after the Budget.

No big spend-up

Mr English says his fifth Budget will also include measures to deal with poverty. These flow from the work done by the Ministerial Committee on Poverty. So far though, the Finance Minister has not given away any details.

But it is clear there will be no big spend-up. Even though Thursday marks the end of the zero budgets, the Government will still only put aside $800 million for new spending. When that has to be spread among big spending portfolios like health, education, housing and welfare it is not a lot of money.

While spending will rise, Mr English remains keen to keep it under control.

The Budget will reveal the finances in this financial year are in better shape than forecast last year. The deficit is likely to be about $2 billion lower than predicted. The predicted forecast in 2013-14 will also be lower, paving the way for the Government to meet its target of returning to surplus in 2014-15.

The Government has made the surplus target an article of faith, so to reach it is more important politically than economically. It will allow the National Party to argue its credentials as a sound financial manager.

Opposition parties will point at another set of books, however, to criticise the Government's economic management.

While the public finances are moving into surplus, the country's current account balance is not. The Budget will forecast that the current account deficit will continue to get worse over the next four years.

The Labour and the Green parties say poor economic management is behind National's failure to rebalance the economy away from domestic spending to the export sector. They say the country has to begin earning its way in the world.

Mr English has a ready response. He says even now, the current account deficit is still half of what it was in the last three years of the previous Labour-led Government.

In Thursday's Budget Mr English will also announce which State-owned power company - Genesis or Meridian Energy - will be put up for partial sale, following on from the sale of 49% of the shares in Mighty River Power.

Mr English will also provide details on where the $1.7 billion made from that sale will be spent.