Finance Minister Bill English yesterday confirmed the
Government's accounts would move to a wafer-thin surplus next
year as he increased further annual Budget allowances to $1.5
The allowances would then be increased by 2% each Budget.
''These modest increases in spending meet the Government's
objective of reducing net debt to 20% of GDP by 2020 and will
not materially affect interest rates.''
In Parliament, Mr English said the Treasury advice he
received confirmed lifting annual Budget allowances to $1.5
billion a year was near the upper limit before they began to
materially affect interest rates.
It was important not to return to the big spending increases
of the mid-2000s which, together with a doubling of house
prices, forced the Reserve Bank to push up interest rates at
a significant cost to households and businesses.
Most economists say the Reserve Bank will increase the
official cash rate next month to 3.5% before taking a break
until September. A cash rate of 4.5% next year is expected to
be the peak.
Budget forecasts showed the operating balance before gains
and losses (obegal) would be in surplus by $372 million next
year, a sharp improvement on the $18.4 billion deficit in
2010-11 and the $3.9 billion deficit the Government inherited
in 2008-09, Mr English said.
Net core Crown debt was forecast to peak on an annual basis
at 26.4% of GDP next year and fall thereafter. Longer-term
projections showed net debt dropping to 20% of GDP in 2019-20
- meeting the Government's debt objective.
Future surpluses would allow the Government to pay for
capital spending and start reducing debt built up during the
years of deficits, he said.
The Government would also restart contributions to the New
Zealand Superannuation Fund once net debt reduced to 20% of
GDP. Westpac senior economist Anne Boniface said the
Government's willingness to increase its allowance for new
spending, in the absence of significant new sources of
funding, was a surprise.
There were limited measures to find savings compared with
previous Budgets and revenue forecasts were little changed,
despite a stronger set of economic forecasts.
''Instead, the Government is willing to sacrifice larger
surpluses in later years - and indeed increase the borrowing
programme - in order to fund this new spending.''
From a macroeconomic point of view, the implications of the
Budget were limited, she said.
The additional spending would provide a slight boost to GDP
growth and increase the pressure for higher rates, although
The increase in projected bond issuance over the next few
years was unlikely to worry investors and could even be
welcomed to the extent it added to bond market liquidity, Ms
Labour Party finance spokesman David Parker said the Budget
fudged the numbers and glossed over the real problems Kiwi
families had been facing for five years.
National had achieved the surplus through overcharging New
Zealanders $120 million for ACC, pretending $375 million in
transport spending was an interest-free loan and cutting $567
million out of the Crown's half share of local infrastructure
from the Canterbury rebuild, despite the Christchurch City
Council saying costs were increasing.
Health spending was going backwards and most New Zealanders
did not earn enough, with 46% of Kiwis getting no rise in
their pay last year, he said.
''Too many young people are in low-paid and insecure service
work. The benefits of growth are not getting through to
working New Zealanders. This Budget does not fix that,'' Mr
New Zealand First leader and former treasurer Winston Peters
said Mr English had done a juggling act to create an
artificial surplus at the expense of all New Zealanders but
especially Christchurch quake victims.
''What sort of Government holds back money from
Christchurch?''Christchurch people knew they were being
sacrificed so the Government could boast about its books.
''The facts are clear. The Government has jacked up the
numbers from an insurance deal when AMI was taken over. The
money was transferred to government bonds. The interest on
the bonds is a match for the surplus. So, behold, the books
balance,'' he said.