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NZ performing well, return to surplus a challenge

NZ performing well, return to surplus a challenge

New Zealand remains on track for solid economic growth, more jobs and rising incomes over the next few years, but falling dairy prices and low inflation will make returning to surplus this year challenging, Finance Minister Bill English says.

“Businesses and consumers are confident about the future, there’s a lot of activity in the manufacturing and service sectors, and companies are employing more people and paying higher wages,” he said in a speech to an ASB business breakfast in Auckland today.

“New Zealand is performing well in a world that remains uncertain. It was clear from the G20 finance ministers’ meeting in Brisbane last weekend that growth remains elusive in Europe and more uncertainty in China is being reflected in some sharply lower commodity prices.”

The Government’s annual Budget Policy Statement, which will be issued on 16 December along with Treasury’s Half-Year Economic and Fiscal Update, is being compiled in what are unusual times for global economies.

“Falls in global commodity prices such as oil, forestry and dairy, together with weak international consumer price inflation, are posing challenges for governments and central banks around the world,” Mr English said. “New Zealand is not immune to these global trends.

“This combination of lower commodity prices and low inflation means that the nominal or dollar value of New Zealand’s economic output will not grow as fast as previously expected. This will affect farm and company incomes and we expect this to flow into the Government’s books through lower revenue.

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“On the other hand, the current economic outlook is positive for households. Low global inflation, a strong dollar and more jobs mean we are not seeing the cost of living increases that would usually go with the kind of real economic growth we’re experiencing right now.

“This means New Zealanders have more spending power as, on average, their incomes are rising a bit faster than the cost of living. Low inflation also means there is less pressure on the Reserve Bank to raise interest rates.”

The Government is continuing with its economic plan – through the Business Growth Agenda and other micro-economic reform initiatives – to build a stronger economy that supports more jobs and higher incomes beyond the peak of this economic cycle, Mr English said. This was reflected in a comprehensive growth strategy presented to the G20 summit last weekend.

“We’re also continuing to support the most vulnerable New Zealanders through better public services and support programmes focused on achieving better results.

“And we’re focused on controlling our spending and returning to surplus this year, as well as reducing net debt to below 20 per cent of GDP by 2020, so we can withstand the next downturn or natural disaster.”

The Treasury’s best assessment of the latest data and the impact on government revenue will be included in the Half-Year Update next month.

“The unusual current combination of economic circumstances is likely to have an impact on these updated forecasts,” Mr English said. “As we’ve said all along, returning to surplus this year will be a challenge.

“But we believe the strength of the economy and constrained government spending can deliver a surplus when the final accounts are published late next year.

“The Government has a track record of sticking to our spending plans to protect the most vulnerable and to provide certainty for public services. We won’t be changing that approach.

“The overall trend in the Government’s accounts is positive. The OBEGAL balance has improved from a deficit of 9.2 per cent of GDP in 2011 to a deficit of just over 1 per cent of GDP in 2014, and we’re on track to reduce net debt to below 20 per cent of GDP.”


ends

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