By Nick Mann | 24 May 2012
The New Zealand government will record an operating budget surplus in 2014/15 as new investment in priority areas is matched by a combination of savings and revenue initiatives, the country’s finance minister Bill English said today.
Delivering the country’s 2012/13 budget statement in Wellington, English said New Zealand would post a NZ$197m (£94.5m) surplus in 2014/15 and then start to reduce its debt. The surplus is then forecast to grow to NZ$2.1 billion in 2015/16 and NZ$4.4 billion in 2016/17. The government’s aim is to meet its long term objective of reducing debt to 20% of gross domestic product by 2020.
New Zealand’s government debt has increased from NZ$10bn in 2008 to NZ$50bn today and is set to exceed NZ$70bn by 2014/15. This build-up had been the ‘appropriate response’ to domestic recession, the global financial crisis and the earthquake last year that devastated the second largest city, Christchurch.
‘The government chose to run larger deficits and absorb much of the impact of these shocks on its own balance sheet to protect vulnerable New Zealanders and enable the economy to get back on track,’ English said. ‘But, as we made clear at the time, this could not continue indefinitely.’
Discretionary spending on new operating and revenue initiatives had been cut from NZ$15bn between 2004 and 2008 to NZ$750m over the past four years. ‘This government’s discipline means New Zealand is on track to return to fiscal surplus in 2014/15, and then to start reducing debt,’ Swan said.
To achieve surplus by 2014/15, Swan said the government would run a ‘zero budget’ over the next four years, with NZ$4.4bn of new spending being matched by a combination of savings and revenue initiatives.
‘The government is making significant new investment in priority areas, while at the same time keeping a tight rein on growth in spending and public debt,’ he explained.
He added: ‘We are also focusing on improving the effectiveness of spending across the board.
Effective public services that get results are good for individuals and their families, and will also generate sustainable long-term savings.
New Zealand will ‘reprioritise’ existing spending in areas such as health, education, welfare, law and order and science and innovation, allowing government spending to fall from 33.5% of GDP in 2011/12 to 30.2% of GDP in 2015/16.
To increase revenues, the government plans to broaden its tax base, closing loopholes and ‘improving the fairness’ of the tax system. Swan said this included removing tax credits and tightening rules for deducting costs of assets that are both used and rented by their owners. Together, these changes are expected to save NZ$410m over the next four years.
Swan also outlined plans to ‘reinforce fiscal disciplines’ by introducing fiscal responsibility principles that ministers would have to take into account when setting out their spending plans.
‘These changes will bring more transparency to government spending decisions and how they affect the wider economy and future generations,’ he said.
Good fiscal management would enable the New Zealand government to pursue its other priorities – building a ‘more productive and competitive economy’, providing better public services and rebuilding Christchurch.
New Zealand’s economy grew by an estimated 1.6% this year and with growth of 2.6% forecast for 2012/13 and 3.4% for 2013/14, the country’s outlook was ‘more positive than most’, Swan said.
‘New Zealand is going through a moderate adjustment. We are avoiding the substantial cuts to public services and living standards that we are seeing in many other developed countries,’ he said.
‘Our outlook is more positive than most. We are a food-producing economy on the doorstep of a rapidly growing middle class in the Asia-Pacific region. Providing we stick to the government’s balanced and ongoing economic programme over the coming years, I am confident we will grasp these opportunities.’
