Budget 2017: Paying down debt and rationing lollies
The economy should be in rude health over the next four years, with growth averaging 3.1 per cent, falling unemployment and inflation remaining in check, according to a Budget update from the Treasury on Thursday.
A "family income package" is the centrepiece of the Budget but is less than half the size of tax cuts and Working for Families changes announced in the 2008 and 2010 Budgets that saw tax thresholds loosened and actual rates of tax fall.
The total value of extra economic activity forecast over five years since the Treasury's last half-yearly economic update is $23.9 billion.
Both the 2008 and 2010 changes were billed as putting more than $4b back into Kiwis' pockets each year, while the family income package announced this year by Finance Minister Steven Joyce will boost annual incomes by $2b.
The Treasury forecast core Crown net debt would fall from 23.2 per cent of GDP at the end of next month to 19.3 per cent by June 2021.
Joyce reiterated a target of reducing net debt to between 10 and 15 per cent of GDP by 2025, saying that would ensure the Government had "the capacity and the resilience to respond to our next economic shock or natural disaster".
If the country wasn't reducing debt "at this stage of the economic cycle", you would have to ask when it would, Joyce said.
"If the Kaikoura earthquake had happened under this city [Wellington] last year, rather than further south, we would be having a very different kind of conversation."
The government surplus is expected to rise from $1.6b this financial year to $7.2b in the year to June 2021 – the final year covered by the new forecasts.
Insurance Council boss Tim Grafton has said lower debt would put the Government in a better position to meet any "backstop obligations" to stand behind the Earthquake Commission, whose Natural Disaster Fund is almost bare.
Joyce also announced the levies homeowners pay to the disaster fund would be hiked by a third in November, to 20 cents per dollar of insurance, and would be capped at a maximum of $276 a year, up from $207.
"We do need to start rebuilding that fund again," he said.
A Stuff poll this week suggested some support for the the Government saving for a rainy day, with 28 per cent of readers most favouring tax cuts, 52 per cent wanting to see higher spending on services such as housing health and education, and 20 per cent saying they most wanted the Government to pay off debt "to save for the next big quake".
Real GDP growth would steadily accelerate from 3.1 per cent in the year to June to 3.8 per cent in the June 2019 year, before easing back to 2.4 per cent in 2021, according to Budget forecasts. Growth next year is expected to come in at 3.5 per cent.
ANZ Bank had forecast economic growth to peak earlier, next year, but at the lower level of 3.6 per cent.
Once New Zealand's population is taken out of the equation, forecast real growth is more modest - rising from 0.9 per cent this year to a peak of 1.8 per cent in 2019 before easing back to 1.1 per cent in 2021.
Joyce said the average wage would rise to $64,300 by 2021, "$17,000 more than when National first came to office".
The loosening of tax thresholds will put an extra $20 a week in the pockets of everyone earning more than $52,000 a year and provide lesser benefits to anyone earning more than $14,000.
Retail NZ policy manager Greg Harford said this week that loosening tax thresholds would boost retail sales across the board. Retailers were "gloomy" with almost half missing their sales forecasts in the first quarter of this year, he said.