Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Fiscal consolidation remains on track

New Zealand budget observer: Fiscal consolidation remains on track


Today’s half year fiscal update reported an improvement in New Zealand’s fiscal outlook. A stronger economy is expected to boost tax revenues. At the same time, the government has maintained restraint on the spending side, continuing to project a return to surplus in 2014/15 (at +$NZ86m, up slightly from +$NZ75m in the May budget). Larger surpluses are then expected in the years beyond this. Net debt is expected to peak at +26.5% of GDP in 2014/15. Despite today’s better figures, fiscal policy is expected to remain a drag on growth in coming years, with the government focused on consolidation.

Facts
- The New Zealand government projects an Operating Balance before Gains and Losses (OBEGAL), of -1.0% of GDP in the 2013/14 year (versus -0.9% in the May 2013 Budget). The OBEGAL is expected to return to a marginal surplus of +NZD86 million by 2014/15 (from +NZD75m previously).

- The outlook for government revenue has been revised higher in later years. This reflects a stronger outlook for domestic activity, with average annual growth of +3.6% now expected in the March 2015 year (up from +3.0% in the May budget). The outlook for government expenditure is largely unchanged from the May budget.

- Net debt is expected to peak at +26.5% of GDP in 2014/15 (previously +28.7 % in the May budget). Bond issuance in 2013/14 is expected to total NZD8 billion, from NZD10 billion projected in May.

Implications
The strengthening New Zealand economy has given a boost to the government’s coffers. Since the May budget, tax receipts have run ahead of projections, as a booming housing market, post-earthquake reconstruction and a rapid run up in export prices provided support to the domestic economy and spending.

This improvement was built in to today’s Half-year Economic and Fiscal Update. The run of stronger economic data in recent months has led the New Zealand Treasury to adopt a rosier outlook for the economy and this has provided a boost to their projections for tax receipts over the next few years, particularly in the later part of the projection. Faced with an improved outlook for tax receipts, the government plans to bank those gains for now, rather than adopt any major new policies to boost spending or significantly ease up on fiscal consolidation plans.

The projected surplus in 2014/15 remains small, at +NZD86 million, as changes in near term expense estimates provided an offset to stronger revenues. Beyond this though, the strong economy is projected to deliver healthier surpluses, with a surplus of +0.7% of GDP projected for 2015/16 (up from +0.3% of GDP in the May budget).

Overall, while the government’s books are in better shape, New Zealand is still undergoing a significant amount of fiscal consolidation over the next few years and this will remain a headwind for growth. Treasury estimates that the direct drag of fiscal consolidation over the next three years is around -2.6% of GDP.

Bottom line
A stronger economy has led to an improvement in the government’s financial position.

The government plans to continue to focus on fiscal consolidation, rather than boosting spending, and therefore announced no major policy changes today.

As a result, the path to surplus is now more assured, but at the same time, fiscal consolidation will remain a headwind for New Zealand’s economy in coming years.

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Crown Accounts: Government Ekes Out Six-Month Surplus Of $9M

The New Zealand government eked out a tiny surplus in the first six months of the fiscal year as growth in domestic consumption lifted the goods and services tax take, while uncertainties over the Kaikoura earthquake costs meant expenses were less than expected. More>>

ALSO:

Almost 400 Jobs: Shock At Cadbury's Dunedin Factory Closure

Workers at Cadbury in Dunedin are reeling after learning this morning that the iconic Cadbury factory is to close, with the loss of almost 400 jobs... “The company had reported it was doing well and this has come out of the blue,” says Chas. More>>

ALSO:

Transport: Boards Of Inquiry For Auckland Roading Projects

Boards of Inquiry have been appointed to decide on two significant Auckland roading projects in a move which will get a decision by the end of the year, Environment Minister Dr Nick Smith and Conservation Minister Maggie Barry announced today. More>>

ALSO:

Three Months On: Quake Reciovery In Kaikōura And Elsewhere

Three months after the magnitude 7.8 earthquake on 14 November, encouraging recovery progress is being made in affected communities. More>>

ALSO:

Jetstar, Qantas For Govt Transport: Government Still In Talks With Air NZ

The government is still negotiating with national carrier Air New Zealand in a cross-agency air travel contract that will add a number of new airlines to the list of approved flyers. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news