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NZ Budget – time to tighten the belt

New Zealand is spending more than it earns, so we have to borrow to meet the difference. In recent times this has spiked, rising from a normal $300m per week to $800m, with a budget deficit forecast of a staggering $16.7 billion. We just can’t keep going like this or we will be the next Ireland and more of our best and brightest will leave for Australia. The spending has to come down.

The 2011 Budget provides no new spending other than on health, education and justice, which together will receive $4 billion over the next four years. These increases will come from the $5.2 billion of cuts in other areas of Government spending. The Government is also looking to realise interests in the big four state owned energy companies and has pledged that the funds from these sales will go into infrastructure including broadband, rail and schools. Public servants and those businesses that support them have a tough time ahead as the quest begins to trim $980 million over three years from the state services sector. The overall aim is to return to a surplus in 2014-15, which feels a long way off.

Doing more with less

So it’s time to knuckle down, do more with less and work hard to grow your businesses. The good news for small business owners is that the Budget offers no significant changes to deal with over the next twelve months. You will be asked to increase your Kiwisaver contribution from 2% to to 3%, which must be matched by your employees. On balance this is not that huge for employers.

With little economic growth to be generated by the Government, the onus is on us to find new markets and grow existing sales relationships. A $5.5 billion special fund to reconstruct earthquake ravaged Christchurch will provide some solid domestic growth in a similar way that property development in Queenstown saw a construction boom in past years.

Exporting will suffer

But there also needs to be more investment to support exporting and those businesses wanting to sell outside of NZ. This is our single biggest challenge and mission critical to our future prosperity. Nothing in the Budget indicates any sort of ramp up in assistance to exporting, which is something of a mistake.

There were a number of things the Government could have done to reduce deficit. These include raising income taxes or another GST (Goods and Services Tax) rise, which would have hurt business. Instead the Government has chosen to steady the ship, control costs, sell assets and leave it up to businesses to grow our economy.

It won’t be easy, but as a businessman, I like the challenge.

 

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