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Remaining on track to Budget surplus in 2014/15

Hon Bill English
Minister of Finance

24 May 2012

Remaining on track to Budget surplus in 2014/15

Budget 2012 sets out a programme of balanced measures to ensure the Government remains on track to return to surplus in 2014/15, Finance Minister Bill English says.

“New Zealand will then be one of the few developed countries not running deficits and increasing debt.

“Getting back to surplus is one of the most important contributions the Government can make to increasing genuine national savings and building a more competitive economy.

“It will reduce upwards pressure on interest and exchange rates. It will stop our debt rising and allow us to start reducing it.

“A significant surplus will give us choices about public services we don’t have while we’re running deficits,” Mr English says.

Budget forecasts show a fiscal surplus of $197 million in 2014/15, despite a $1.2 billion deterioration in the fiscal outlook for that year since the Budget Policy Statement in February.

“Since receiving preliminary Budget estimates, ministers have taken a number of decisions to ensure we remain on track to surplus,” Mr English says. “They have focused on continuing effective government programmes that deliver results to New Zealanders and curbing programmes that do not.”

Budget decisions include:

• Running a zero Budget this year for the second consecutive year. Net new government spending out to 2015/16 totals just $26.5 million.
• Reprioritising $4.4 billion of existing spending over the next four years to ensure New Zealanders receive better public services, especially in health, education, science and innovation, welfare, and law and order.
• Confirming the operating allowance will remain at $800 million for 2013/14 and $1.2 billion in 2014/15.
• Building on revenue measures of recent years by closing tax loopholes around livestock and mixed-use assets. The livestock changes will reverse an estimated $184 million fall in revenue and the mixed-use asset changes will save $109 million over four years.
• Providing Inland Revenue with an extra $78.4 million to further improve its audit and compliance functions. This is expected to have a net $345.4 million positive impact on the operating balance over the next four years.
• Removing three tax credits that no longer serve their original purpose, including the income-under-$9,880 tax credit, the childcare and housekeeper tax credit, and the tax credit for the active income of children. This will save $117 million over the next four years.

“These are balanced decisions spread across all of the Government’s spending areas,” Mr English says.

“As a result, we remain on track for surplus while continuing to invest in priority areas that matter to New Zealanders, and which will help build the more competitive economy necessary to create new jobs and higher incomes.”

Between 2006 and 2008, final year spending on new discretionary operating and revenue initiatives totalled around $15 billion. In the past four years, this spending has grown by only around $750 million.

“Despite this, government debt has increased sharply in recent years, due to the impact of the domestic recession, the Global Financial Crisis and substantial costs of the Canterbury earthquakes,” Mr English says.

In 2008, net government debt was $10 billion. It has since increased to $50 billion and is forecast to reach more than $70 billion, before the Government returns to surplus and debt stops rising.

Budget forecasts show an operating deficit before gains and losses of $8.4 billion in 2011/12, falling to $7.9 billion in 2012/13 and $2 billion in 2013/14, before the $197 million surplus in 2014/15.

They also show Budget decisions will keep net core Crown debt below 30 per cent of gross domestic product. It is forecast to peak at 28.7 per cent of GDP in 2013/14, before the Government returns to surplus and starts reducing debt.

ENDS

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