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On track to surplus, more jobs, higher incomes

Hon Bill English

Minister of Finance

19 August 2014

Embargoed until midday

Media Statement
On track to surplus, more jobs, higher incomes

New Zealand is on track to Budget surplus this year, backed by good growth, more jobs and higher incomes under the Government’s economic programme, according to Treasury’s Pre-election Economic and Fiscal Update issued today.

“The Pre-election Update confirms New Zealanders have the opportunity to build on their hard-won gains of recent years – providing we stick with the Government’s successful programme,” Finance Minister Bill English says.

“Now is certainly not the time to put New Zealand’s good progress at risk with more taxes and sharply higher government spending.

“The forecast Budget surplus for this year is still modest at $297 million and the forecast surpluses in subsequent years are not large - and yet we already have political parties making expensive promises and commitments.

“We saw how this approach damage New Zealand under the previous Labour government, when the spending proved unsustainable and we went into deficit. The economy collapsed into recession before the global financial crisis, cost of living increases soared above 5 per cent and floating mortgage rates reached almost 11 per cent.”

The Pre-election Update confirms the outlook for New Zealand’s economy and the Government’s books have not changed significantly since the Budget in May.

“Some of the drivers of growth are expected to be a little stronger than forecast in the Budget, while others have weakened a little,” Mr English says.

The latest Treasury forecasts include:

• The Government’s operating balance before gains and losses is expected to be in surplus by $297 million in 2014/15 – down from $372 million in the Budget forecasts. Surpluses in each of the following three years will be smaller than forecast in the Budget.

• Core Crown expenses are forecast to fall to 30.3 per cent of GDP by 2015, down from 35 per cent of GDP in 2011.

• Because residual cash deficits continue for a year longer than forecast in the Budget, net government debt is expected to fall below 20 per cent of GDP in 2020/21 – when contributions are now scheduled to resume to the New Zealand Superannuation Fund.

• Annual average GDP growth for the year to March 2014 was 3.3 per cent compared with the 3 per cent Budget forecast. Growth for the year to March 2015 is forecast to be 3.8 per cent (compared with the previous 4 per cent forecast) and then largely in line with previous forecasts.

• There were 83,000 more New Zealanders in jobs in the year to June 2014. Treasury’s Pre-election Update forecasts another 151,000 new jobs will be created by mid-2018.

• Unemployment is forecast to fall to 4.5 per cent by 2018 – down from 5.6 per cent in the June quarter of this year.

• In the two years to March, the annual average wage has increased by around $3,000. The Treasury forecasts it will increase further by around $6,600 to $62,000 by mid-2018.

“So on all of the key indicators, the Pre-election Update confirms that New Zealand is on track and heading in the right direction,” Mr English says.

“The economy is making good progress and public agencies are delivering better services in areas that really matter to communities – such as lower crime, higher educational achievement and more New Zealanders moving from welfare into work.

“While this progress is encouraging, we have more work to do. Should we have the privilege of being re-elected, the National-led Government will maintain a busy programme of policy reform aimed at supporting more jobs and higher incomes for New Zealanders.”

The Pre-election Update is available at:

http://www.treasury.govt.nz/budget/forecasts/prefu2014


PRE-ELECTION ECONOMIC AND FISCAL FORECASTS

201320142015201620172018
ActualActualForecastForecastForecastForecast
Economic (March years, %)
Economic growth12.23.33.83.02.22.1
Unemployment rate26.26.05.65.24.84.5
CPI inflation30.91.51.72.42.32.1
Current account balance4-3.9-2.8-4.8-6.2-6.4-6.4
201320142015201620172018
ActualForecastForecastForecastForecastForecast
Fiscal (June years, $ billions)
Core Crown revenue64.167.372.276.580.384.2
Core Crown expenses70.371.372.875.978.681.5
Total Crown OBEGAL5-4.4-2.60.30.81.93.0
Net core Crown debt655.859.964.367.067.567.9

1 Real production GDP, annual average percentage change

2 Percent of labour force, March quarter, seasonally adjusted

3 Consumers Price Index (CPI), annual percentage change

4 % of GDP

5 Total Crown operating balance before gains and losses (OBEGAL)

6 Net core Crown debt excluding the New Zealand Superannuation Fund and advances


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