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

 

Final Frontier: Rocket Lab And NASA Sign Commercial Space Launch Agreement

Rocket Lab has signed a Commercial Space Launch Act Agreement with the National Aeronautics and Space Administration (NASA). The agreement enables Rocket Lab to use NASA resources - including personnel, facilities and equipment - for launch and reentry efforts. More>>

ALSO:

Scoop Business: Wheeler Downplays Scope For ‘Large’ Rates Fall

Reserve Bank governor Graeme Wheeler says some market commentators are predicting further declines in interest rates that would only make sense for an economy in recession, although some easing is likely to be needed to maintain New Zealand’s economic growth. More>>

ALSO:

Ruataniwha Dam: Consent Conditions Could Mean Reduced Intensity

Legal advice sought by the Hawke’s Bay Regional Council on the Ruataniwha Dam consent conditions has confirmed that farmers who sign up to take water from the dam could be required to reduce the intensity of their farming operation to meet the catchment’s strict nitrogen limit. More>>

Health And Safety: Bill Now Sees Rules Relaxed For Small Businesses

Health and safety law reform sparked by the Pike River coalmine disaster has been reported back from the industrial relations select committee with weakened requirements on small businesses to appoint health and safety representatives and committees. More>>

ALSO:

Bearing Fruit: Annual Fruit Exports Hit $2 Billion For First Time

The value of fruit exported rose 20 percent (up $330 million) for the June 2015 year when compared with the year ended June 2014. Both higher prices and a greater quantity of exports (up 9.0 percent) contributed to the overall rise. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news