With a surplus, albeit a smaller one of $297 million
still in his sights this year, Finance Minister Bill English
has confirmed his Government has budgeted for tax cuts some
time over the next four years but this morning ruled out
announcing them ahead of the election.
Speaking to reporters at the release of Treasury's
Pre-election Economic and Fiscal Update this morning, Mr
English also warned that in spite of the ongoing economic
recovery there was no room for what he called the
Opposition's "random dumb spending approach".
In spite of the recovery looking a little weaker than
forecast in the May Budget, the Government's promised 2014-15
surplus remains intact, although smaller at $297 million
according to today's Pre-election Economic and Fiscal Update
Treasury Secretary Gabriel Makhlouf cautioned the softer
outlook underlined the need for the Government to keep a
tight rein on the purse strings, a warning seized on by
Finance Minister Bill English to attack the Opposition's
planned increases in spending.
Mr English old reporters this morning Conditions for the
Crown were still "reasonably tight" "This is not a cycle
where the Government is bouncing out of deficit into
surpluses." "There is no room for significant loosening of
the purse strings.
"You can't maintain this fiscal track by throwing money and
hoping it will work" Mr English said, referring to the
Opposition's fiscal plans as "random dumb spending approach".
Mr English said it was his Government's intention to reduce
taxes "when conditions allow it".
He confirmed his Government's operating allowances which rise
by $1.5 billion a year over the next four years included some
headroom for tax cuts but none would be announced before the
The Government was leaving room for more ACC levy reductions,
but it was important it did not overcommit itself, and left
itself some fiscal headroom.
He criticised the Opposition for fully committing all of its
spending for four Budgets in advance, leaving itself little
room to contend with emerging challenges except by taking on
more debt or increasing taxes further.
At this year's Budget, Treasury had forecast the 2014-15
return to surplus, which the National Government has promised
as a key indicator of its economic management skills - would
be $372 million as measured by the operating balance before
gains and losses (Obegal). This morning, it trimmed that back
to $297 million.
Mr Makhlouf said the outlook for economic growth was slightly
weaker than forecast in the May Budget in nominal GDP terms,
"and this will impact on the Crown's finances".
While the Crown was expected to run surpluses beginning from
the the current financial year, "the profile is weaker than
anticipated in the Budget".
The key driver in the changed forecasts was a lower tax take,
reflecting the softer economic outlook.
"Prudent careful management of the Crown's finance's remains
a priority as the Crown looks to maintain annual surpluses
and remain on track to pay down debt", Mr Makhlouf said.
Mr English said the new forecasts "confirms New Zealanders
have the opportunity to build on their hard won gains of
recent years -- providing we stick with the Government's
"Now is certainly not the time to put New Zealand's good
progress at risk with more taxes and sharply higher
Government spending." Labour Leader David Cunliffe yesterday
said his party would trim its spending plans if today's
forecasts outlined the Crown's finances would be softer.
Meanwhile, Mr Makhlouf said key risks to the forecasts
included were geo-political risks that could affect the
international trading environment.
There were also risks around how households responded to
recent interest rate increases, risks around the pace of the
Canterbury rebuild and some uncertainty around emerging
market economies and how they responded to interest rate
increases in the major economies including the US.
Addressing recent falls in dairy price, Mr Makhlouf said
should that continue, "this could have negative implications
for the economy and the Crown accounts over the forecast
Mr English said the slightly softer outlook meant net debt
would now fall below 20 per cent of GDP in 2020-21 -- a year
later than previously forecast. That meant a National
Government would also delay the resumption of contributions
to the NZ Superannuation Fund by a year.
How key forecasts have changed since the Budget
2014 (actual) / 2015 / 2016 / 2017 / 2018
GDP Prefu: 3.3 / 3.8 / 3.0 / 2.2 / 2.1
GDP Budget: 3.0 / 4.0 / 3.0 / 2.1 / 2.1
Surplus/(deficit) Prefu: ($2.6b) / $297m / $818m / $1.85b /
Surplus/(deficit)/Budget: ($2.45b) / $372m / $1.26b / $2.37b