By Nick Mann | 18 December 2012
New Zealand will clear its deficit in 2014/15 but with a smaller surplus than previously forecast, Finance Minister Bill English said today.
The Treasury’s Half year economic and fiscal update predicts that the 4.4% deficit recorded in the year ending June 2012 will be reduced to 3.4% next year and 0.9% in 2013/14, before reaching a surplus of $66m in 2014/15.
This is significantly lower than the $370m surplus forecast in February, and represents a further scaling back from the $197m forecast in May’s 2012 budget.
Net government debt is forecast to increase from 24.3% of gross domestic product in 2011/12 to a peak of 29.5% of GDP in 2014/15, before failing – albeit at a slower pace than forecast in this year’s budget.
The Treasury attributed the revised forecasts to lower tax revenues resulting from the weaker economic outlook. But it noted that lower inflation and interest rate forecasts meant the cost of welfare and financing would also be lower, partially offsetting reduced revenues.
English, who is also deputy prime minister, acknowledged that the slowdown in the global economy meant it had been a ‘challenging’ 2012 for New Zealand and that the economic crisis and cost of the Christchurch earthquake meant that debt had been higher than expected over the past few years.
But the government was now starting to get the benefits of the ‘revenue positive’ tax changes it had made since 2010, while it also had ‘good control’ of spending.
‘The New Zealand public are realistic in their expectations of what we should be spending, but the way we’ve achieved that control is by focusing on results, and in particular long term-results, for changes in public services,’ he said.
‘We’ve set ourselves a goal for better public services with less money. And, at the end of 2012, public perceptions of public services are actually improving despite the finances being tight, and that’s a tribute to everyone involved.
He added: ‘Because of the long-term decisions we’ve made about controlling expenditure over the next 10 or 15 years we’re going to have remarkably less government debt than was expected back in 2008, and it shows the long-term benefits of careful incremental decision making in the shorter term.
English acknowledged that the global economic environment was uncertain, which made it even more important to maintain ‘clear and credible’ fiscal plans. Next year’s budget would confirm the government’s commitment to ‘responsible long-term fiscal management’.
‘This will require restraint well beyond the surplus target of 2014/15, so we can pay down debt and build a buffer against the next global shock, while at the same time resuming payments to the New Zealand Superannuation Fund and targeting investment at priority public services,’ he said.
‘At the same time as getting its own finances in order, the government is continuing to address New Zealand’s significant economic challenges, including a sustained rebalancing towards the internationally competitive sectors of the economy.’
