Economic momentum building as plan on track
Hon Bill English
Minister of Finance
17 December 2013
Economic momentum building as plan on track
The Government’s programme to build a faster-growing economy with more jobs and rising incomes is delivering positive results, Finance Minister Bill English says.
The Half-Year Economic and Fiscal Update, issued today, forecasts a relatively strong upturn, with economic growth reaching 3.6 per cent in 2015 and the unemployment rate falling.
“While the recovery gathers momentum, the global environment still remains uncertain,” Mr English says. “In this environment, it is important to maintain clear and credible economic and fiscal settings, as this is the best way to create new jobs, raise incomes and help families to get ahead.”
The latest forecasts show the Government posting a modest operating surplus before gains and losses of $86 million in 2014/15 – similar to the $75 million surplus forecast in Budget 2013.
Surpluses are then forecast to increase to $1.7 billion and $3.1 billion respectively in the following two years. Debt is forecast to fall, with net core Crown debt expected to peak at 26.5 per cent of GDP in 2014/15, before falling to 16.9 per cent of GDP in 2019/20.
“The Government remains committed to responsible long-term fiscal management,” Mr English says. “Improving public sector performance will assist in ongoing spending restraint beyond 2014/15, so we can pay down debt in dollar terms from 2016/17 and build a buffer against future shocks.
“We have a lot of work ahead to make the forecasts and projections a reality. The Government is this year borrowing a net $78 million on average every week and, in dollar terms, net debt will peak at $64.5 billion in 2015/16.
“It is also important to avoid the mistakes of the mid-2000s, when large increases in government spending and a booming housing market drove up interest rates and the exchange rate and eroded productivity.”
At the same time as getting its own finances in order, the Government is continuing to address New Zealand’s significant economic challenges, including a sustained rebalancing towards those sectors of the economy that compete internationally.
“A broad range of targeted microeconomic reforms currently underway, through the Business Growth Agenda, will help lift New Zealand’s productivity and competitiveness.
“Since mid-2009, the tradeables sector has grown by 11.1 per cent, after going into recession in 2005. In the same period, the non-tradeables sector has grown by 6.6 per cent.
“This is a good start, but successful rebalancing will require consistent and positive change over several years,” Mr English says.
The New Zealand economy continued to expand through 2013, growing at 2.5 per cent in the year to June – despite the severe drought which significantly restricted growth in the first half of 2013. This was among the higher annual growth rates among developed countries.
“Signs are that the pace of growth has picked up appreciably in the second half of 2013, and the Half-Year Update shows the economy expanding at 3.6 per cent over the year to March 2015, and then at an average of 2.3 per cent over the following three years.”
Mr English says New Zealand is well placed compared to most countries.
“On average, wages are increasing faster than inflation, business confidence is at its highest level since 1999 and the terms of trade remain high. There are over 53,000 more people employed now than a year ago, and the unemployment rate is dropping as the economy gathers strength.”
Budget 2014 will continue the Government’s priorities for this term: responsibly managing its own finances and returning to surplus; pushing ahead with wide-ranging microeconomic reforms to create a more productive and competitive economy; driving better results and better value for money from public services; and supporting the rebuilding of Christchurch.
“The Half-Year Update confirms the Government’s economic programme is working by laying the foundations for a stronger economy, sustainable jobs and higher incomes,” Mr English says. “New Zealand is well-placed to take advantage of the many opportunities available over the next few years and to withstand global shocks when they come our way.”
The Half-Year Economic and Fiscal Update and Budget Policy Statement are available at:
SUMMARY OF ECONOMIC AND FISCAL FORECASTS
|2013 Actual||2014 Forecast||2015 Forecast||2016 Forecast||2017 Forecast||2018 Forecast|
|Economic (March years, %)|
|Current account balance||-4.5||-4.2||-5.5||-6.3||-6.5||-6.4|
|Fiscal (June years)|
|Total Crown OBEGAL ($millions)||-4,414||-2,320||86||1,674||3,104||5,623|
|Net debt (% of GDP)||26.2||26.3||26.5||25.8||24.4||22.3|