IMF confirms Govt's prudent approach to debt

IMF confirms Govt's prudent approach to debt

A new International Monetary Fund report confirms Government measures to control debt have left us well placed compared with other developed countries, Finance Minister Bill English says.

An IMF staff report, released overnight, puts New Zealand among a group of five countries – out of 23 advanced economies - that have the most fiscal room to deal with future unexpected shocks.

"When we came into Government we inherited a global crisis and a poorly performing economy that had already been in recession for several months. We were staring down the barrel of 10 years of deficits and debt was projected to climb ever higher if no action was taken," Mr English says.

"We have taken several prudent steps to get debt under control. They include:

• Capping new Budget operating allowances at $1.1 billion.
• Reprioritising $3.8 billion lower quality spending into frontline services.
• Capping the bureaucracy.
• Deferring contributions to the Super Fund until there are sufficient surpluses to resume payments.
• Replacing planned tax cuts with a larger package of fiscally neutral tax changes which begins on October 1.

"These balanced and considered steps will reduce the amount the Government has to borrow by about $17 billion by June 30, 2013.

"Along with low taxes – especially after 1 October tax changes – our lower debt gives us the opportunity to stand out from other countries and attract skilled workers and investment.

"However we should not underestimate the challenges that remain. Public debt will rise sharply in the next four years to cover a combined $36.5 billion in Budget cash deficits. As a result the Government will need to find more savings if it is to continue improving frontline services," Mr English says.

The report is available at http://www.imf.org/external/pubs/ft/spn/2010/spn1011.pdf.

ENDS