Bill English gives financial update, says reducing debt and earthquake recovery more important than tax cuts
Infrastructure spending, rather than tax cuts, has taken priority in Finance Minister Bill English's last time showing off the Government's books.
Despite a forecast surplus of $473 million for the current financial year, rising to $8.5 billion in 2020/21, English - all but confirmed as New Zealand's next prime minister - says reducing debt and tackling the costs of the Kaikoura earthquake, are higher priorities than reducing tax rates.
He has also backed Steven Joyce to replace him as finance minister, should he successfully win the leadership battle.
Treasury's Half Year Economic and Fiscal Update, finalised before Prime Minister John Key announced his resignation, paints a rosy picture of rising wages, strong growth, and growing surpluses.
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English said economic growth was expected to average about three per cent over the next five years - "considerably stronger than forecast" in May's Budget.
The more positive outlook was due to a booming construction sector, strong tourist numbers, a growing population, and low interest rates.
Unemployment was forecast to drop to 4.3 per cent by 2020/21, with another 150,000 jobs created and the average wage expected to increase to $66,000, an increase of $7500.
English said capital spending would be boosted from $900m to $3b in next year's Budget, to and $2b for every Budget afterwards, to allow more "high-quality infrastructure and investment projects" such as schools and hospitals and the first stage of the Auckland city rail link.
Housing NZ was also working on a proposal for a large-scale government house-building programme, which would need funding if approved.
TAX CUTS NOT HIGHEST PRIORITY
English's leadership competitors, Judith Collins and Jonathan Coleman, both spoke against the idea of tax cuts before pulling out of the race.
English himself remained cagey about the chances of any tax changes, saying they would only take place if "economic and fiscal conditions allow", while there were higher priorities.
"We need to absorb the impact of the Kaikoura earthquake...and we've got to focus on paying down debt, so that sets constraints on other choices."
There was no "explicit provision" for tax cuts, but the Government would consider its options for Budget 2017 or later as the financial situation continued to improve.
"The good thing is we've got the choice and we've got some flexibility."
English said he had spent eight years working closely with Joyce, and believed he would be the best choice as finance minister.
"He's just got a fantastic set of skills, a very good understanding of the economy and a very good understanding of policy right across government."
ECONOMY ON SHIFTING SANDS - LABOUR
Labour finance spokesman Grant Robertson said the fiscal update showed the economy was "sitting on shifting sands"
"It's easy to glance at the headline figures and see a rosy picture of government surplus and economic growth, but look harder and there is plenty for New Zealanders to be concerned about.
"The country's economic growth is a sandcastle based on rampant house price inflation, high personal debt, and on population growth that is putting pressure on infrastructure and public services – pressure that this Government is failing to address."
Green Party co-leader James Shaw said the Government's books showed it had the capability to restore funding in areas it had "cut to the bone", like health, housing, police and conservation.
EARTHQUAKE COSTS SLIM SURPLUS
Treasury has estimated the cost of last month's Kaikoura earthquake to be between $2b and $3b, but with only a $1b net cost to the Government due to insurance and existing funds.
The cost of the earthquake, along with higher ACC costs, mean the forecast $473m surplus for 2016/17 is lower than the $1.8b surplus in 2015/16.
Contributions to the Super Fund, paused following the global financial crisis, are forecast to restart in 2020/21 once net debt goes below 20 per cent of GDP.
Net debt as a proportion of GDP has peaked in 2015/16, a year earlier than thought, and is expected to fall to 18.8 per cent of GDP by 2020/21.
The tax take over the four years to 2020/21 is expected to be $7.7b higher than expected, but will be offset by higher costs for superannuation, as well as the bill from the Kaikoura earthquake.
Risks to New Zealand's positive outlook include the state of the global economy, with uncertainties over the impact of Brexit on the UK and the European Union, "ongoing imbalances" in the Chinese economy, and Australia's move away from investment in mining.