The Business Advisory Blog

The Business Advisory Blog

Insight, news and updates from Alliott NZ Chartered Accountants, Auckland New Zealand. The views expressed here are the views of the author and should be discussed in further detail should an article be relevant to your individual circumstances.

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Greg Millar
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NZ business growth agenda

Measures intended to reinforce the strong economic growth New Zealand has experienced in recent past, projected to continue to immediate future.

Untitled-529The Budget observes that over 200,000 more jobs have been created over the last three years to arrive at a real GDP growth rate of 2.7% in the 2016 fiscal year. The annual GDP growth rates for 2017–2020 are forecast to be 3.1%, 3.5%, 3.8% and 2.9%.

The growth has been supported by low-interest rates, rapid population growth, residential investment and earthquake rebuilds.

Inflationary pressures are expected to build to over 2% in 2019, leading to interest rate rises. Net migration is expected to fall as the attractiveness of New Zealand declines, although net migration of 212,000 people over the next four years is still expected. The annual long-run increase of 15,000 per annum may emerge in 2022.

Housing investment has been strong up until recently, but currently investment has flattened because of tighter loan-to-value ratios, uncertainty around the Auckland Unitary Plan, capacity constraints and tighter credit conditions. These temporary headwinds are expected to subside so that house price growth may pick up once more in 2018, but ease from 2019 onwards as supply increases to match demand.

Earthquake expenditure includes the $9.5 billion paid out by the National Disaster Fund to assist with the Christchurch rebuild. It is expected that rebuilding State Highway 1 from Picton to Christchurch following the Kaikoura earthquake will cost $812 million.

The Budget papers note that the strong economy and prudent fiscal management have resulted in the New Zealand Government receiving high credit ratings. Moody’s has assigned an AAA rating, with an AA rating from both Standard & Poor’s and Fitch.

A slight shadow over the prospects of continued good economic health is cast by a number of factors. These include uncertainty as to the sustainability of growth in China, the possibility of slower growth in Australia should a significant weakening in its housing market development, and abatement of the very stimulating monetary conditions currently in place in Japan and in the euro region.

Business growth agenda expenditure totalling $1 billion over four years is allocated as $39 million in 2017, $200 million in 2018, $264 million in 2019, $268 million in 2020 and $268 million in 2021. The breakdown of the total expenditure is set out in the Minister’s speech.

Interestingly, the Budget papers forecast a total of $6 million expenditure on the multinational corporation research and development attraction programme. The programme aims to attract the research and development facilities of 10 multinational companies to New Zealand by 2020.

The Budget papers also project revenue increases totalling $250 million relating to the taxation of multinational companies operating in New Zealand. No further detail was provided beyond a revenue impact of $50 million in 2019, $100 million in 2020 and $100 million in 2021.

Read our full NZ Budget coverage here.

Ministerial statement

The Government’s plan for growth is sensible conservative fiscal policy, strong orthodox monetary policy, and an ongoing programme of microeconomic reform that enhances the competitiveness and confidence of Kiwi businesses.

It is crucial that we pull on all three of these levers.

Our programme of microeconomic reform is called the Business Growth Agenda. It includes measures to boost New Zealand’s trade, lift the skills of our workforce, recruit skilled migrants our companies need to grow, boost innovation, attract new investment especially in regional New Zealand, and build the infrastructure that a growing economy needs.

Budget 2017 invests $1 billion over four years in sustaining the strong economic plan that is getting New Zealand to grow.

First, the Government is allocating $373 million in the second round of our Innovative New Zealand programme.

Innovative New Zealand is a series of science, R&D and skills initiatives that are working together to lift the innovation activity of New Zealand companies.

The funding includes $82 million for the Government’s pre-eminent applied science fund – the Endeavour fund; $132 million for Tertiary Education to ensure young New Zealanders obtain the skills we need; and $75 million for Callaghan Innovation’s R&D grants to help our tech companies succeed.

It’s all about adding more value to our export volumes. Investment in innovation is hugely important for li ing our productivity and providing for our future prosperity.

Budget 2017 allocates $134 million over four years to advance New Zealand’s Trade Agenda 2030, including opening new embassies in Dublin and Colombo, as we work towards our ambitious target of having 90 per cent of goods exports covered by trade agreements.

There is $304 million towards the ongoing development of our screen sector, and $146 million in new funding to grow our tourism infrastructure around the country so every region can benefit from the growth in our tourism industry. 

Topics: budget credit Growth housing Inflation Investment migration New Zealand