Price of recession is $50 bln, English says
$50 Billion is the price of Kiwi recession, English says
22 April - Finance Minister Bill English has put a price on the recession- $50 billion over three years - and revealed fears of a bigger jump in government debt than previously forecast by the Treasury that would require policy action to deflect.
In a Budget scene-setting speech to CEOs and senior executives in Auckland, English said the recession would hack $50 billion out of the $180 billion a year New Zealand economy over the next three years.
Vigorous reforms to improve the quality of government spending, on top of the regulatory reforms and fiscal stimulus already announced, would be a priority for the Government.
In contrast to other, recent recessions, the second-time-round Finance Minister claimed a resilient national mood during the current downturn that made him optimistic.
"Most people are doing what they need to do to get through the current challenges. That wasn't really my sense during the recessions of the 1980s and 1990s, when I remember feeling that many people were paralysed by the economic conditions."
Instead of heading above $200 billion annually, New Zealand's Gross Domestic Product will flatline at around current levels of economic activity per year, leading to a dramatic fall in tax revenue.
"With no policy change, Crown gross debt would hit 45% of GDP by 2013 - up from the main December forecast of 33%," English said, unveiling a serious deterioration in one of the crucial economic measures which his May 28 Budget will address.
"Many of you will remember the long and painful experience of paying down Crown debt in the late 1980s and early 1990s. We don't want to be in that position again."
English repeated in the speech that the Key government is "committed to retaining social entitlements", even if the next two years' tax cuts proved unaffordable.
The Budget would include a decision on the cuts, announced in the last Budget of the Labour-led government, a year ago and before the global financial markets meltdown.
While government spending could not continue to increase as fast as it had in the past, it would still rise in the year ahead and there would be "considerable new spending", said English.
English also hinted that the Budget would reveal substantial savings in government spending, after a thorough shake-out for low quality activity.
"I've actually been quite surprised by how much of this low quality spending we've found and we'll continue doing this in future Budgets," he said.