The economy is growing strongly, but Treasury has cut the amount it expects to raise in tax and with it the size of future surpluses.
The Treasury today released the pre-election economic and fiscal update (Prefu), giving an update on the state of the Government's books just a month out from the election.
Crucially, Finance Minister Bill English's long-promised surplus for 2014/15 is said to be on track by Treasury, the Crown's official bean counter.
The surplus is, in fiscal terms, wafer-thin at $297 million, down from $372m in the last forecast, and equivalent to just 0.2 per cent of total economic output.
But the outlook for surpluses in the following years is markedly weaker than it was in May's Budget, delivered just three months ago.
Treasury has cut the projected surplus by $500m in each of the next three years, meaning the combined surplus between now and mid-2018 is $6 billion, some $1.5b below what it had in autumn been expected to be.
The lower surplus forecasts means there is less scope for new spending by the Government, and that Crown debt would take longer to reduce.
Treasury said today debt, in nominal terms, would now peak at $67.9b in 2018. It was expected to peak at $65.5b in 2017.
With debt taking longer to fall, Treasury said, based on current settings, payments to the NZ Superannuation Fund, put on hold when National came to office as the recession hit, would be delayed a year to 2020/21.
Nevertheless, the economy in general was "growing strongly", Treasury Secretary Gabriel Makhlouf said.
Forecast to grow at an average of 2.8 per cent over the next four years, Makhlouf said this was "above its sustainable long-term capacity to grow", meaning inflationary pressure on the economy was building with a strong residential housing market in Auckland and Christchurch.
"It underlines, among other things, the importance of fiscal restraint in a growing economy," Makhlouf said.
"Prudent careful management of the Crown's finances remains a priority as the Crown looks to maintain annual surpluses and remain on track to pay down debt."
English said the Government would seek to keep on top of its books in a bid to give certainty to households.
"There is no room for significant loosening of the purse strings," English told reporters at a press conference in the Treasury this morning.
While National wanted to reduce taxes "when there is room to do so", English warned that any cuts, when they came, were likely to be modest. He flatly ruled out an announcement on a possible tax-cut package ahead of the election.
English said National had maintained room to alter its spending plans, while Labour had committed all of its spending allowances for the next four Budgets.
"They have no more choices against what they've already committed," English said, adding that spending plans for the Green Party were on top of that proposed by Labour.
English batted away questions relating to him detailed in Nicky Hager's new book, Dirty Politics. They include the leaking of a name of a public servant suspected of revealing details about English's use of his accommodation allowance by Justice Minister Judith Collins to WhaleOil blogger Cameron Slater.
"The economy matters a lot more to people than some argument in the blogosphere," English said, adding that the fact that gossip and leaking were part of politics was not "new news".
Labour finance spokesman David Parker said the figures showed exports were dropping and growth was slowing under National.
"Growth under this Government peaked in June and halves to 2 per cent in coming years," Parker said in a statement.
"At the same time wages will stagnate and interest rates will rise relentlessly.
"The fiscal update shows that exports will fall from 33 per cent of GDP when National came into office to 26 per cent of GDP. Their promise of increasing exports to 40 per cent of GDP is nothing more than a pipe dream." Under National the economy had become increasingly reliant on raw commodities such as dairy and logs, with other industries such as manufacturing struggling, Parker said.
"At the same time too much capital goes into housing speculation rather than productive businesses. New Zealand will never get rich selling houses and farms to each other or to foreigners."
- Treasury says the economy is "growing strongly" and expected to continue to do so, with recent falls in dairy prices not outside forecasts.
- This year the books are forecast to return to surplus; wafer-thin at $297 million. It nevertheless fulfils a major political promise which if missed could have hurt Finance Minister Bill English's credibility.
- Beyond 2014/15 the surpluses will not grow at nearly the rate that Treasury had forecast, owing to a cut in the level of expected revenue from tax, especially GST.
- This means debt will be higher for longer, now peaking higher and later at $67.9b in 2017/18.
- Unemployment is forecast to drop to 4.5 per cent by 2018, down from 5.6 per cent at the end of June.