When New Zealand’s budget was handed down yesterday it was business as usual for the National-led coalition government. Prime Minister John Key’s government delivered another cautious, albeit sensible budget edging slowly in the right direction.

Compared with the ALP government in recent years, the NZ National Party has been the model of prudence. Despite being fiscally cautious in the early 2000s, under the Helen Clark-led Labour government, spending per capita rose from under $NZ12,000 to a staggering $NZ15,000 between 2003-04 and 2008.

This is the challenge bequeathed to the National Party. However, despite opposing these increases at the time, the Nats have not really grasped the nettle on the issue in government. At 8.4 per cent this year and 7.9 per cent next, the country is still running the biggest deficits in its history, yet the response of the government is essentially politically dictated: the entitlements that created the structural deficit remain. Core revenue is about $NZ60 billion, while spending is about $NZ69 billion.

Minister of Finance (Treasurer) Bill English’s strategy has been to deliver his second “zero budget”. Essentially this means that overall spending is not increased, but is rearranged within a cap. In practice health, education and welfare, considered core priorities, receive increased funding paid for by savings elsewhere. The $NZ800 million in new operational spending budgeted for this year has been slashed to just $NZ26.5 million. It is a cautious but sensible and credible approach.

In the longer term, however, this approach has difficulties. Turning off the spigot does not fill in the pool. Giving departments less money to achieve more might be sound from an efficiency point of view, but it is easily undone down the track when a future government promises an end to “austerity”.

However, the contrast between the Key/English government and the Gillard/Swan regime could not be clearer. Whether one agrees with the cuts (“savings”), or thinks they are pitiful, there is a plan for fiscal consolidation, weeding out poor quality spending and redirecting funds into “frontline services” as opposed to bureaucracy. A surplus was always planned, and due to a bit of prudence the minister of finance has bought it forward a year to 2014-15. It is however, a Wayne Swan style surplus–razor thin at $NZ179 million and reliant on 3 per cent growth.

The budget continues a rebalancing of the tax system. Tax cuts three years ago are still in place and various loopholes have been closed. New Zealand’s tax system is far cleaner than Australia’s in any case, and the little changes generally continue to add to its integrity.

There are also a myriad of small changes. Student loan repayments (comparable to HECS) have risen from 10 per cent to 12 per cent of gross income, cigarette tax is going up 10 per cent per year for the next four, some of the savings have been channelled into welfare where an aggressive new strategy to get people into work is being pursued.

A significant change is to Kiwisaver, NZ’s answer to compulsory superannuation. Employers match employee contributions at a minimum of 2 per cent of gross salary (down from 4 per cent two years ago) and a maximum of 8 per cent. It is not compulsory, but a planned “auto enrolment” scheme was planned to start this year. This has been scrapped until a surplus is locked in, and will save the government in subsidies.

The government is also proceeding with partial asset sales (49 per cent share) of Air New Zealand and four state-owned enterprises. Yesterday, Mr English announced that the expected $NZ558 million in proceeds this year will go into a Future Investment Fund spent on infrastructure, high-speed broadband in schools, new hospitals and the like. In Australia these funds have proved easy to raid, but the principle of putting proceeds from asset sales into a dedicated infrastructure fund rather than general revenue (and being spent on entitlements) has definite merit. At the very least, it is politically astute.

The biggest budget disappointment was the continued loyalty to wasteful and ineffective entitlement programs. Kiwisaver, with its effective 50 per cent subsides continues to be a large expense; interest-free student loans, and Working for Families all continue to burn a hole in government budgets. Working for Families in particular has a pernicious effect of trapping the middle classes on welfare due to high abatement rates.

On the positive side, however, the government has resisted the urge to hand out cash to favoured voter groups and there are no fiddles of the sort Wayne Swan used in his budget. Indeed, the minister of finance cannot finagle accounts and payment timing in the way the Australian Treasurer did. Moreover, if he were to do so, he would lose all credibility. The process and the minister have a high level of integrity.

To sum up, the budget was boring and predictable, continuing along a path set by the prime minister and minister of finance in 2009. There is a legitimate feeling that it is not bold enough, but it does have its own internal logic. Indeed, compared with the Australian budget farce a fortnight earlier, many should be looking wistfully back across the Tasman.