The Budget 2004 Releases

Hon Dr Michael Cullen
Minister of Finance

5th budget best yet - Cullen

"Budget 2004 is a strong financial and policy statement from a government with the guts and the confidence to govern for the long-term," Finance Minister Michael Cullen said today.

"It is my fifth budget and the best yet. It reinforces and advances substantially the themes of the preceding four budgets, and it owes a lot to the restraint of those budgets.

"The disciplined fiscal management the government has practised in previous years has created the capacity to deliver what is by New Zealand standards a relatively big spending budget.

"The budget commits $2.4 billion in new spending in 2004-05, rising to $3.8 billion by 2007-08. The lions' share goes to the budget centrepiece, the Working for Families package, which will be phased in over the next three years and will cost $1.1 billion a year at maturity.

"This represents a significant investment in the workforce of the future and takes the same far-sighted perspective as characterises the New Zealand Superannuation Fund which is the government's response to the pressures created by the aging population.

"Other spending priorities in the budget are health, education, law and order and economic development. The government wants to create a society which gives its children a good start, provides for the physical welfare of its citizens, ensures they have the opportunity to develop their talents to the fullest both when they are at school and when they are in the workforce and guarantees them an adequate standard of living in retirement.

"Budget 2004 makes significant progress toward all those objectives," Dr Cullen said.

He said the economic outlook in the budget pointed to the economy's resilience and promised a stable environment in which New Zealanders could plan.

Unemployment was expected to remain low and wages to rise ahead of prices while inflation remained firmly under control.

Growth would begin to slow toward the end of this calendar year, troughing at 2.5 per cent in 2005-06, as the impact of the exchange rate and reduced immigration flows began to hit. It was then forecast to rebound to over 3 per cent the following year on the back of strengthening world demand.

Dr Cullen said the fiscal position moving forward was sufficiently robust that the government was committing in the budget to move from the current 30 per cent of GDP gross debt target to a goal of slowly reducing debt over the longer term and passing through the 20 per cent mark before 2015.

"We have made excellent progress on debt reduction since taking office. We inherited a ratio of gross debt to GDP of 33.7 per cent. It is now sitting at just under 25 per cent and is forecast to fall slowly to 21.8 per cent by the end of the forecast period.

"The surplus track is for an OBERAC [Operating Balance Excluding Revaluations and Accounting Changes] of $6 billion this year; $5.7 billion in 2004-05; $5 billion in 2005-06; $5.1 billion in 2006-07 and $5.4 billion in 2007-08.

"But there are some important caveats that need to be put around these figures. The cartoonists like to draw me sitting on pots of gold. The cartoonists are wrong. Only a small fraction of that money will be available for what might be loosely termed 'discretionary' use.

"It also has to fund the contributions to the NZ Super Fund, the financing of student loans and the government's capital expenditure programme, including hospitals, schools, prisons and defence acquisition.

"In fact, I have already warned my colleagues that our next two budgets will have to be tight with new spending limited to $1.8 billion and $1.6 billion respectively.

"This is a big budget and one of which I am extremely proud. The benefits of it will roll out over the next four years, providing a modest fiscal stimulus to the local economy. But it will limit our capacity for additional new spending initiatives in the coming two years," Dr Cullen said.

ENDS

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