Govt: Economic Plan "Remains On Track"
Treasury's Half-Year Economic and Fiscal Update, and Govt 2013 Budget Statement
18 December, 2012
Mark P. Williams
Today saw the release of the Treasury's Half Year Economic and Fiscal Update alongside a Budget Policy Statement from Finance Minister Bill English. The Minister said that New Zealand remained "on track" towards surplus in 2014/15.
Some of the key points made by the Treasury and the Finance Minister are as follows:
- Estimate of damage caused by earthquakes has been revised upwards, with the estimated cost being raised to $30bn.
- Smaller surpluses than those forecast in the budget are now expected in 2015/16 and 2016/17.
- Crown debt expected to fall more slowly than in the budget update.
- The government surplus forecast has been revised down from $197m to $66m. The government's budget policy statement describes this as a "modest operating surplus"
- Economic growth forecast to average 2.5 %.
The Treasury and the Finance Minister both made statements.
The Treasury statement said that the Canterbury rebuild, low borrowing costs and continuing demand for primary exports will "help support economic growth in the medium term".
The Treasury forecast emphasised that the main outside factors which would have a determining effect on New Zealand's ability to recover remained its increasing exports and economic ties to Asia and the US. It made clear that the ability of the US government to negotiate its so-called "fiscal cliff" was a significant factor, while factors such as over-inflated house prices and local government debt in China were also raised as possible issues. The forecast offers two economic risk scenarios based on this which could prove decisive in whether New Zealand's international trade is able to continue to offset its economic shortfalls. The "Upside" scenario details possible circumstances which might lead to a GDP of $16bn higher than forecast, while the "Downside" outlines possible circumstances which might lead to a GDP $26bn lower.
The update explains that other extraneous factors, such as natural disasters and extreme weather events may also have impacts on the timing and effect of economic policies on New Zealand's ability to recover.
Finance Minister Bill English insisted that New Zealand remains "well-placed" compared with other countries but placed emphasis on a need for "restraint" beyond the stated target for surplus of 2014/15. In a thinly-veiled reference to the policies of the opposition parties, the minister described the present economic environment as a time for "sensible and responsible policy" and not "untried economic experiments".
Minister stated that the Government has set four main
- Returning to surplus and reducing debt, or "responsibly managing government finances";
- Pushing ahead with what he called a "wide-ranging" and "cohesive programme of microeconomic reform" aimed at making the New Zealand economy more productive and competitive;
- Improving or "driving better results" from public services through "value for money" within "tight financial constraints"; and
- Supporting the Christchurch rebuild
The Minister acknowledged that the ways in which other countries dealt with their own financial outlooks would inevitably effect New Zealand's situation but went on to emphasise that New Zealand was still expected to grow faster than the UK and Euro area. The Minister also acknowledged that the forecast surplus of $66m "is not large" and added that "The need for control does not expire once we get to 2014/15". The Minister said that the government had taken the approach of "bringing the drivers of long-term public spending under control".
On the difficult question of unemployment the Minister said that employment growth "flatter than forecast". He added that, despite this "More people kept their jobs through their recession but had their hours and pay cut".
On the matter of government spending and public service provision, the Minister said that the government will continue to "re-prioritise" spending "away from areas which do not get results" and "towards areas which do get results", adding that it would be a continued requirement for government departments to "find efficiencies".
On government and private debt, the Minister said that New Zealand household debt levels are above US and Japan, and equal with those of Canada and Spain and said that this was something which should be balanced by decreasing government debt.
Questions to Mr English
The Minister was asked whether he would be prepared to cut spending if the Govt was not in line to meet its target. He responded that the government was not prepared to meet its surplus targets "at any cost".
The Minister was asked to comment on his decision not to make further cuts to ACC levies. He responded that areas such as ACC levies were one of several relatively "self-contained" areas which nevertheless had an impact on the "path to surplus".
The Minister was asked whether the announcement today on fuel excise increase was to "balance the books". He responded that it was not and that it was a matter of "the on-going control of expenditure". He was pressed further as to whether the government had "needed to raise taxes to keep on track". He responded that this was playing "word games" but acknowledged that without the changes in transport funding in general the government would have "fallen short".
The Minister was asked about the decision not to take up the recommendations on the ACC levies, and whether it was a decision driven by the desire to reach economic balance. He responded that they tried to make the decisions primarily on "the merits for the entity" and then secondarily maintain economic targets.
The Minister was asked whether its adherence to the surplus target of 2014/15 was "slavish". He said that he felt it to be a matter of sticking to the fiscal discipline. The Minister was then asked whether the political commitment was weighing more heavily than the economic necessities on the government. He refuted this and placed his emphasis on the economic responsibilities of the government.
The Minister was asked about the uncertainty of Treasury's forecasts. He said that he was more concerned about the uncertainty of "the real world" than those of the forecast figures.
The Minister was asked about migration numbers. He responded that the relative performances of the Australian and New Zealand economies would be decisive.
The Minister was asked how "wedded" he was to the benchmark for government debt. He said that it was important that government debt balanced that of private and household debt levels.
The Minister was asked how concerned he was about the drop-away in tourism. He responded that there were two things going on together: the exchange rate and the shift in markets as European markets grew quieter and Asian tourism markets increased more slowly.
The Minister was asked how much of a risk was posed by the Christchurch rebuild costs. He said that anything to do with Christchurch remained a significant uncertainty which could rise. He added that the way to deal with it was by controlling those other areas that could be controlled by government policies.
Finance Minister Bill English
Treasury Statement Audio
Statement of the Finance Minister Bill English Audio