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

 

Sky City : Auckland Convention Centre Cost Jumps By A Fifth

SkyCity Entertainment Group, the casino and hotel operator, is in talks with the government on how to fund the increased cost of as much as $130 million to build an international convention centre in downtown Auckland, with further gambling concessions ruled out. The Auckland-based company has increased its estimate to build the centre to between $470 million and $530 million as the construction boom across the country drives up building costs and design changes add to the bill.
More>>

ALSO:

RMTU: Mediation Between Lyttelton Port And Union Fails

The Rail and Maritime Union (RMTU) has opted to continue its overtime ban indefinitely after mediation with the Lyttelton Port of Christchurch (LPC) failed to progress collective bargaining. More>>

Earlier:

Science Policy: Callaghan, NSC Funding Knocked In Submissions

Callaghan Innovation, which was last year allocated a budget of $566 million over four years to dish out research and development grants, and the National Science Challenges attracted criticism in submissions on the government’s draft national statement of science investment, with science funding largely seen as too fragmented. More>>

ALSO:

Scoop Business: Spark, Voda And Telstra To Lay New Trans-Tasman Cable

Spark New Zealand and Vodafone, New Zealand’s two dominant telecommunications providers, in partnership with Australian provider Telstra, will spend US$70 million building a trans-Tasman submarine cable to bolster broadband traffic between the neighbouring countries and the rest of the world. More>>

ALSO:

More:

Statistics: Current Account Deficit Widens

New Zealand's annual current account deficit was $6.1 billion (2.6 percent of GDP) for the year ended September 2014. This compares with a deficit of $5.8 billion (2.5 percent of GDP) for the year ended June 2014. More>>

ALSO:

Still In The Red: NZ Govt Shunts Out Surplus To 2016

The New Zealand government has pushed out its targeted return to surplus for a year as falling dairy prices and a low inflation environment has kept a lid on its rising tax take, but is still dangling a possible tax cut in 2017, the next election year and promising to try and achieve the surplus pledge on which it campaigned for election in September. More>>

ALSO:

Job Insecurity: Time For Jobs That Count In The Meat Industry

“Meat Workers face it all”, says Graham Cooke, Meat Workers Union National Secretary. “Seasonal work, dangerous jobs, casual and zero hours contracts, and increasing pressure on workers to join non-union individual agreements. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news