Govt still looking at surplus

David Parker.
David Parker.
The Government remains on track to report a wafer-thin surplus in 2014-15 but economists say the Crown accounts have little wriggle room over the next couple of years.

Despite the improved outlook, the Government has chosen not to announce any new spending plans, instead preferring to wait until election year, next year.

The latest forecasts from the Treasury show the Government posting a modest operating surplus of $86 million in 2014-15.

Surpluses are then forecast to increase to $1.7 billion and $3.1 billion in the following two years.

Debt is forecast to fall and net core Crown debt is expected to peak at 26.5% of gross domestic product in 2014-15, before falling to 16.9% of GDP in 2019-20.

ASB chief economist Nick Tuffley said the Treasury has revised up its economic growth projections over the coming years.

The upward revisions reflected both a stronger than expected starting point, as well as signs the New Zealand economy was gaining momentum.

The upward revisions were concentrated in the household sector, partly, reflecting the higher starting point for private consumption.

''Improving consumer confidence and growth in residential consumption is expected to underpin continued growth over the coming years.''

The Treasury did not make substantial revisions to the amount of residential construction it expected to take place, mainly reflecting earthquake rebuilding in Canterbury.

However, it did push out the timing of when it expected the bulk of the residential investment to take place to around 2015-16.

''We expect the Canterbury rebuild to be even more protracted, relative to both the Treasury and Reserve Bank forecasts,'' Mr Tuffley said.

Finance Minister Bill English said the Government still had a lot of work ahead to make the forecasts and projections a reality.

The Government was this year borrowing a net $78 million on average every week, and in dollar terms, net debt would peak at $64.5 billion in 2015-16.

''It is also important to avoid the mistakes of the mid-2000s, when large increases in government spending and a booming housing market drove up interest rates and the exchange rate and eroded productivity.''

While the recovery gathered momentum, the global environment still remained uncertain.

''In this environment, it is important to maintain clear and credible economic and fiscal settings as this is the best way to create new jobs, raise incomes and help families to get ahead,'' Mr English said.

Labour Party finance spokesman David Parker said five years on from a recession, with a $40 billion rebuild and the best terms of trade in 40 years, it was no surprise there was economic growth. But it was not attributable to the Government.

National would just scrape into surplus next year, primarily by overcharging New Zealanders for their ACC levies.

''Labour ran nine surpluses in a row and left zero net debt and is committed to a return to surplus. The duty of government is to ensure all Kiwis benefit.

"The real secret of these forecasts is National has overlooked the interests of the vast majority of New Zealanders.''

Council of Trade Unions economist Bill Rosenberg said the forecast growth in the economy was largely driven by a relatively limited number of sources: commodity prices, house building and construction and other activity in the Christchurch rebuild.

He queried how that would ''trickle down'' into more and better jobs and rising wages and salaries.

Forecast wage growth after inflation was slower than forecast productivity increases so wage and salary earners would get a falling share of the income available in the economy.

Unemployment was forecast to fall only slowly. Employment growth would only slowly reduce the gap opened up over the last four years between employment growth and the increase in the working age population.


Main forecasts 2014-15

Economic growth: 3.6%

Budget surplus: $86 million

Net core debt: Peaks at 26.5% of GDP

Inflation: 3.6%

Reduced government bond programme: from $10 billion to $8 billion, plus a repurchase plan of up to $3 billion of bonds coming due over the next six months.


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