The Budget Business

Published in Idealog Magazine May 24, 2012 @ 3:04 pm

Health, education, and science and innovation are the biggest winners in a thrifty budget, which has narrowed the $12.1 billion operating deficit forecast in February's policy statement to a projected $8.4 billion.

Aided by careful spending, that forecast deficit drops to $7.9 billion in 2012/13 and $2 billion in 2013/14, and crossing into a surplus of $197 million in 2014/15.

Finance minister Bill English's 'zero budget' includes a total of $26.5 million in total net new spending over the next four years.

He has scrounged up $3 billion of savings in lower-priority spending and raised almost $1.4 billion in new revenue by increasing tobacco excise tax, greater targeting of tax avoidance, closing tax loopholes, and ending old tax credits.

Prime minister John Key has stuck by the assertion the government was on track to post a small surplus. Asked at a press conference earlier this week about how he thought a second consecutive zero budget would be remembered, he responded that he felt it would be remembered as sensible and considered.

English says the Christchurch rebuild will be a key driver of economic growth.

But the Treasury has trimmed its economic growth projection, with GDP forecast to rise to 1.6 percent in the 2012, 2.6 percent in 2013 and 3.4 percent in 2014, down from 1.9 percent, 2.8 percent, and 3.8 percent forecasts respectively in February’s outlook.

That's based on slower growth in Asia and Australia, which would affect exports and trade.

(Check out Keith Ng's excellent Budget infographic here.)

Budget initiatives (for four years to 2015/16) include: 

·         Increases science and innovation funding across government to more than $1.3 billion a year by 2015/16.

 ·         Establishing the Future Investment Fund to invest the $5 billion to $7 billion of proceeds of the government’s partial share sales of four SOEs and Air New Zealand into modern infrastructure. This includes $558.8 million in Budget 2012.

·         $33.8 million to fit out schools for ultra-fast broadband

·         $88.1 million for the health sector, most of which will go towards hospital redevelopments.

·         $250 million for the third year of KiwiRail’s Turnaround Plan.

·         Almost $1.5 billion of extra funding for health, pushing total health spending to $14.1 billion in 2012/13.

·        $511.9 million of operating funding for new initiatives in education, pushing total funding for early childhood education and schooling to $9.6 billion in 2012/13.

·       $59 million extra to boost funding for science and engineering tertiary courses, $37.7 million more for an additional 3,000 Youth Guarantee places to further improve the transition for young New Zealanders from school into work or training, and $29.5 million operating spending for Private Training Establishments (PTEs)

 ·       $287.5 million up-front investment in the first phase of the government’s welfare reforms to support more long-term beneficiaries into work. This includes:
$80 million for early childhood education childcare and the Guaranteed Childcare Assistance Payment.
$55.1 million for 155 dedicated Work and Income staff to support job seekers and sole parents into work.
$1 million for financial assistance to access long-acting reversible contraception.
$148.8 million for youth services including wrap-around support.

 ·         $65 million in operating spending for new and expanded rehabilitation and reintegration programmes

·         A new Justice Sector Fund of $87 million

·        $104 million more for the Social Housing Fund

·        $11 million towards insulation for 41,000 more homes

·        $114.9 million extra funding for the Canterbury Earthquake Recovery Authority (CERA) to oversee the reconstruction of Christchurch.

·        $13 million in Social Development funding for NGO-led initiatives to support Cantabrians and assist with the recovery.

·        $800,000 for Land Information New Zealand to continue re-surveying the Canterbury region.

 

Getting Export Ready

Exporting can be a great way to fast-track your business growth because it gives you access to lots of potential new customers. Exporting has lots of moving parts, though, so before you start exporting you need to consider a few things:

Do your homework

You need to pick a market that you can win. It needs to be large enough to support your product, have enough demand to validate your product and people need to have money to spend on your product. As a business owner, some logical markets will immediately spring to mind. Cut the list to 2-3 and then focus your research on these markets. Compare markets based on the research and make your decision. It also pays to look at the markets where other local businesses are exporting because the channels you need will already be in place.

Spend some time in your new market

You need to be there. It really makes all the difference.  This could be a series of trips or you can move there for a few months.  Working hard, understanding the market and meeting potential customers will give you an invaluable firsthand understanding of what you need to succeed. Once you put a country manager in place, your experience in the market will give you better understanding of how to manage and support this person.

Create milestones and commit to achieving them

Confirm your key milestones and goals for your new export market.  What does short term (6 months) success look like? Set aside the funds and go for it. Make sure you know what you’re getting yourself into, too. Hiring your first person, growing the team and building the business is going to take time, effort and cash.

Anticipate scale

Exporting into new bigger market can bring a scale you may not have experienced before. Since it takes time and money to establish an office, market your product and build up some momentum, your costs are going to rise before your revenues do. Before you start exporting, you need to establish what those costs are going to be and raise enough money to cover them before the money starts coming in. If you’re massively successful, you’re going to incur massive costs, so think forward to make sure you can get ahead of them.

Look after your domestic market

When you’re setting up an export market, you’re going to be busy and distracted. Make sure you don’t neglect your domestic market; consider hiring someone to keep an eye on it while you’re getting ready to export.

Know when to walk away

If you do not hit most of your milestones in your first six months and have spent all the funds you have put aside, don’t just keep plowing on. Be clinical about it. It’s a business decision. You can always scale back, reset, then invest again at a later time.

Exporting is great for business growth. It’s exciting but it does have some challenges. Everything is new. With determination, good planning and well thought through governance you’ll improve your chances of success.

Published on the Xero Blog  Published in Business on 29 May 2012 by Hamish Edwards