A Responsible Budget

The dilemma facing John Key with this year’s Government Budget was a significant one. Should he keep tight control on the budget deficit so as to preserve our international standing in financial markets, or should he loosen the reins to provide relief to households struggling to make ends meet and hasten economic recovery?

 If you are a parent you will understand exactly how the Prime Minister felt. When your fun-loving teenagers ask for a handout because their pocket money has run out, do you give them money at the risk of going into overdraft yourself and perhaps upsetting your bank manager, or do you ask them to cut back on their lifestyle and tough it out for a while? Key’s answer was to take a responsible approach to avoid a huge budget deficit.

 It seems rather incredible that a year or two back the Government had such a large budget surplus it was almost embarrassing. How quickly the world has changed. Gone now are the election promises of tax cuts which would have given a jolt in the arm to the ailing economy. Gone are the promised contributions to the NZ Superannuation Fund, designed to allow baby boomers to retire in comfort. Many are now wondering how long it will be before the age of eligibility for NZ Superannuation will be raised. The more security-conscious over fifties will no doubt be feeling increased pressure to take care of their own retirement needs rather than relying on the Government. That is not necessarily a bad thing, as Kiwis are notoriously bad savers, but as usual it will be the low income earners with few spare dollars for saving who will be the most badly affected.

 One disappointment is the closing of the KiwiSaver mortgage diversion scheme. Under this scheme half of a KiwiSaver member’s contribution could be diverted to repay a mortgage. This made KiwiSaver more affordable for those still struggling with high levels of debt. In defence of the closure, however, the lowering of the minimum KiwiSaver contribution from 4% to 2% of pay has increased its affordability. Mortgage diversion proved to be a good concept in theory but a nightmare for banks to implement, and no doubt banks are breathing a sigh of relief that it has come to an end.

 It is pleasing to see more funds being allocated to numeracy and literacy in schools. Let’s hope that some of this funding finds it way to improving financial literacy. In July this year the Ministry of Education is expected to release a Personal Financial Education Framework which schools can use to teach financial literacy at both primary and secondary school level. At present, there is unfortunately no intention to make it compulsory for schools to adopt this framework and there is much work to be done to promote the teaching of financial literacy in schools. One can’t help but wonder whether a higher level of financial literacy in the population at large would have helped make our households more resilient to the global financial crisis. If you agree, ask your local schools what they intend to do about implementing the Personal Financial Education Framework within their curriculum next year.