Books in good shape as surplus nears
Books in good shape as surplus nears
The Crown’s books are in good shape and on track to surplus as the Government maintains its careful and responsible management of public spending, Finance Minister Bill English says.
“We’re making good progress on the Government’s fiscal priorities and the outlook is positive,” Mr English says.
The Treasury is predicting solid growth, growing employment and real wage increases. However, lower inflation means tax revenue is not rising as quickly as expected.
The Budget forecasts for 2015/16 show a modest OBEGAL surplus of $176 million, increasing to $1.5 billion the following year, and $3.6 billion in 2018/19.
For 2014/15, the forecasts show a deficit of $684 million, which is $2.2 billion less than last year’s deficit.
“The overall fiscal trajectory has not changed,” Mr English says. “The surplus target has helped to turn around the Government’s books. We’ve come from an $18.4 billion deficit four years ago to seeing steadily rising surpluses into the future.”
The forecasts also show the Government meeting its other major fiscal target of reducing net government debt to 20 per cent of GDP by 2020.
“The Government has no intention of making cuts to services, programmes or income support in response to lower tax revenue simply to chase a surplus.
“We have a track record of sticking to our spending plans to protect the most vulnerable and to provide certainty for users of public services. We won’t change that approach just to turn a small forecast deficit into a small forecast surplus,” Mr English says.
There is therefore no change to the amount set aside each Budget for new policy initiatives. Budget 2015 has a net operating cost of $1 billion per year. This is made up of $6.1 billion of new operating spending over the next four years, of which $2 billion is funded through reprioritisation and increased revenue.
Budget 2016 also has an allowance of $1 billion. A one-off higher Budget allowance of $2.5 billion in 2017 provides options for future income tax reductions should fiscal and economic conditions allow. The allowance for Budget 2018 then falls to $1.5 billion.
These allowances are much smaller than the amount spent by the previous Government, which averaged over $3.3 billion in each of their last six Budgets.
“The Government has focused on controlling its spending and getting better results from public services. This approach is succeeding. Core Crown expenditure has fallen from 34.1 per cent of GDP in 2008/09 to an expected 30 per cent in 2015/16.”
As in previous years, Budget 2015 includes reprioritisation of lower-value spending. For example, removing the $1,000 KiwiSaver kick-start saves over $500 million over four years. Introducing a border security levy means taxpayers will no longer have to meet the cost of passenger border clearance, which is around $100 million a year.
“We are committed to delivering ongoing spending restraint. In part this will be achieved by actively investing in better public services,” Mr English says. “By addressing the long-term drivers of social dysfunction, we can deliver results for the community and results for the Government’s books.
“Last year, we reduced the expected cost of supporting current beneficiaries over their lifetime by $7.5 billion. A key part of this was getting more sole parents into work.”
The forecasts also include provision for annual ACC levy cuts of $375 million in 2016 and a further $120 million in 2017, depending on the outcome of public consultation. This is in addition to the $1.5 billion reduction in annual ACC levies since 2012.
New capital spending in this Budget is funded by reprioritisation, drawing on a further $939 million in proceeds from the Government’s share offers through the Future Investment Fund.