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Budget 2019: NZ surpluses narrow as spending ramps up

By Rebecca Howard

May 30 (BusinessDesk) - New Zealand’s fiscal outlook remains in line with the government’s strategy, but forecasts included in Budget 2019 show smaller surpluses as spending ramps up.

“We are maintaining sustainable surpluses over the period and keeping the debt at manageable levels,” said Finance Minister Grant Robertson when presenting the budget.

“The Budget Economic and Fiscal Update released today shows the government’s books remain in good shape,” he said.

Treasury is now forecasting a surplus in operating balance excluding gains and losses of $3.5 billion in the year to June 2019, wider than the $1.7 billion it forecast in December.

However, surpluses then narrow to $1.3 billion the following year before ticking up to $6.1 billion at the end of the forecast period.

Its December forecasts were for a $4.1 billion surplus in the year to June 2020. It was forecast to be $8.4 billion at the end of the forecast period.

Overall, the obegal is $9.2 billion lower over the forecast period.

The initial narrowing in the surplus is a result of expenses outpacing tax revenue growth, it said.

Net operating cashflows are in surplus across the forecast period but capital spending is expected to exceed operating cashflows until the last year of the forecast period.

Residual cash deficits are expected over the next four years before returning to a surplus in 2022-23. Treasury forecasts indicate residual cash deficits of $10.6 billion across the forecast period.

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“These residual cash deficits are funded from additional borrowings and utilising financial assets,” it said. As a result, net core Crown debt is forecast to increase by $11 billion.

As a percentage of GDP, it continues to hover just above 20 percent until it declines to 19.9 percent in the year to June 2022.

In December, Treasury forecasts also showed it dipping below 20 percent in the year to 2022 but was expected to be a lower 19.0 percent.

The annual growth in core Crown expenses is expected to be 8.3 percent in the year to June 2019 and 6.8 percent in the following year and 6.0 percent in the following two years. This compares to an annual average growth of 2.9 percent over the previous five years, Treasury said.

In nominal terms, core Crown expenses are expected to increase by $25.1 billion over the forecast period to $105.7 billion and “a key driver of this increase is government decisions,” Treasury said.

It is, however, also expecting a bigger tax take over the period, bolstered by a tight labour force, employment growth, domestic consumption and improving corporate profits.

By the year to June 2023 it sees core Crown tax revenue at $105.6 billion versus $84.7 billion in the year to June 2019.

Source deductions are forecast to grow $10.8 billion over the forecast period. Half of that comes from forecast wage growth while the rest comes from expected employment growth and fiscal drag, which contributes $1.9 billion.

GST is tipped to grow by $8.6 billion over the period and corporate tax is seen growing by $3.6 billion.

Regarding possible risks on the tax side, Treasury noted that the Tax Working Group has recommended the government look at whether planned tobacco excise rises should go ahead. The increase is included in the tax forecasts and is expected to raise $295 million over the period. “Depending on the decisions made, there may be fiscal impacts,” it said.

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