Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 


Boom helps deliver balanced budget

New Zealand Budget Update: Boom helps deliver balanced budget

The New Zealand government has presented the first fiscal surplus in six years, as expected, at $NZ0.4bn in 2014/15 (+0.2% of GDP). The surplus is projected to rise further from there, to $NZ1.3bn in 2015/16 and $NZ2.4bn in 2016/17. This will limit the peak in net debt to 26.4% of GDP. Fiscal policy is expected to remain a modest headwind to growth in coming years, with the government focused on delivering a sustainable budget surplus – something the booming New Zealand economy should easily manage. The strong economy has given policymakers a little more scope to ease up on the pace of consolidation, with the government announcing an increased spending allowance for future budgets. Today’s budget is unlikely to surprise the RBNZ and we continue to expect a rate hike from the central bank in June.

Facts
- The New Zealand government projects an Operating Balance before Gains and Losses (OBEGAL), of -1.1% of GDP in the current fiscal year (versus -0.9% in the May 2013/14 Budget). The OBEGAL is expected to return to surplus of +$NZ372m in 2014/15 (from +$NZ75m in Budget 2013/14).

- The Treasury has upgraded their outlook for the domestic economy, with average annual GDP growth of +4.0% now expected in the March 2015 year (up from +3.0% in the Budget 2013/14).

- Net debt is expected to peak at +26.4% of GDP in 2014/15 (previously +28.7 % in Budget 2013/14). Bond issuance is projected to total $NZ8bn in 2014/15, falling to $NZ7bn in each of the next three years.

Implications
Today’s budget suggests that the New Zealand economy is on track to deliver the first fiscal surplus in six years. The New Zealand government has maintained a commitment to expenditure constraint since the global financial crisis and this has seen the budget bottom line improve from -4.6% of GDP in 2010/11 (excluding earthquake expenses) to an expected +0.2% of GDP in 2014/15.

The government remains committed to expenditure constraint in future budgets, with the fiscal surplus projected to rise further in coming years. This will see fiscal consolidation remain a modest headwind for the economy – with the Treasury estimates implying a fiscal drag averaging -0.7% of GDP a year over the next four years. The New Zealand economy should easily weather this further tightening, as it remains on track to deliver one of the strongest growth rates in the OECD. A continued commitment to expenditure constraint will help manage New Zealand’s boom and keep pressure of the exchange rate and interest rates.

Given this commitment to expenditure constraint, net debt is projected to peak at 26.4% of GDP in 2014/15 and fall to 20% of GDP by 2019/20.

The booming economy has allowed the government to loosen the reins a little and still achieve its targets for net debt. Previously, the government had allocated a new operating allowance of $NZ1 billion for future budgets. This new operating allowance will be increased to $NZ1.5 billion in 2015/16 and will grow by +2% annually thereafter. The existing operating allowance has allowed for extra spending programs in today’s budget, including: an expansion of paid parental leave entitlements; increased funding for early childhood education; a suspension of some import duties to decrease housing costs; and additional spending on education and healthcare.

Increased future spending allowances may also allow the government to announce additional spending or revenue measures in the lead up to September’s election – potentially taking the form of modest tax cuts or revisions to income tax thresholds.

In terms of the implications for monetary policy, today’s budget is unlikely to significantly surprise the RBNZ, with fiscal consolidation having been a feature of the New Zealand macroeconomic landscape for a number of years. As a result, we continue to expect the RBNZ to hike rates further in June.

© Scoop Media

 
 
 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

 

Wellington: Predator Free Capital Plan

Wellington City Council (WCC), the Greater Wellington Regional Council (GWRC) and NEXT Foundation, today announced a joint collaboration to make Wellington the first Predator Free capital city in the world. More>>

ALSO:

Gordon Campbell: On Judith Collins’ Efforts At Self Correction

Thousands of prisoners currently in prison may be entitled to an earlier release than expected – and compensation – because Corrections has incorrectly calculated their term of imprisonment. Unless of course, the government buries its mistakes by changing the law and retro-actively getting itself off the hook… More>>

ALSO:

More Justice & Corrections

Sector Opposes Bill: Local Government Bill Timeframe Extended

The Minister of Local Government Peseta Sam Lotu-Iiga has asked the Select Committee to extend the report back date for the Local Government Act 2002 Amendment Bill (No 2). More>>

ALSO:

Breed Laws Don’t Work: Vets On New National Dog Control Plan

It is pleasing therefore to see Louise Upston Associate Minister for Local Government calling for a comprehensive solution... However, relying on breed specific laws to manage dog aggression will not work. More>>

ALSO:

Not Waiting On Select Committee: Green Party Releases Medically-Assisted Dying Policy

“Adults with a terminal illness should have the right to choose a medically assisted death,” Green Party health spokesperson Kevin Hague said. “The Green Party does not support extending assisted dying to people who aren't terminally ill because we can’t be confident that this won't further marginalise the lives of people with disabilities." More>>

ALSO:

General Election Review: Changes To Electoral Act Introduced

More effective systems in polling places and earlier counting of advanced votes are on their way through proposed changes to our electoral laws, Justice Minister Amy Adams says. More>>

Get More From Scoop

 

LATEST HEADLINES

 
 
 
 
 
 
 
 
 
Politics
Search Scoop  
 
 
Powered by Vodafone
NZ independent news