Govt finances heading for surplus faster: Treasury

Finance Minister Grant Robertson. Photo: Getty Images
Finance Minister Grant Robertson. Photo: Getty Images

A faster and stronger economic rebound from the Covid-19 pandemic will see the Government's finances headed back to surplus sooner than expected, according to the Treasury.

The half year economic and fiscal update (HYEFU) shows lower budget deficits over the next four years as a strong tax take and lower expenses bolster the Government's finances.

"While New Zealand's economy contracted in 2020 it is forecast to rebound strongly in 2021, outperforming regions we compare ourselves to like the Euro Zone, the United Kingdom and Japan," Finance Minister Grant Robertson said this afternoon.

Economic growth is forecast to be 1.5% in the year to June next year compared with a slight contraction forecast in the September pre-election update.

Unemployment is expected to peak at 6.8% in 2022 and then decline over the next three years to about 4%, compared to a 7.7% peak forecast in September.

The lower jobless rate was expected to reduce social welfare benefit costs as well as boost the tax take, which would also benefit from higher GST and corporate tax revenue.

"The fiscal position is still challenging," Robertson said.

However, higher income and lower costs are expected to see smaller budget deficits.

Treasury warns that closed borders are still a drag on growth, and there are downside risks from slower global growth.

Net debt is now forecast to peak at 52.6% of GDP in 2023, a year earlier and lower than forecast before the election, while the budget deficit is seen to have peaked already at $23 billion this year and will gradually to $4.2 billion in 2024.

"New Zealanders will have to get used to higher levels of debt," Robertson said.

The Government has $10.3 billion uncommitted to be spent on future measures if there should be a significant return of Covid-19 to the country.

The stronger condition of the Government's finances has seen the Treasury reduce planned borrowing by more than $25 billion over the next three years.

However, Robertson would not comment on whether the Government would "bank" the financial gains from lower deficits, borrowing and higher revenue, saying it was all part of the budget process.

 

 

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