Govt upbeat but surplus on knife edge
A roaring New Zealand economy will boost jobs and make debt levels fall sooner and further, Finance Minister Bill English says, as the Treasury delivered its most upbeat economic statement since National took office.
The half-year fiscal and economic update (HYEFU) released today showed the Government's key political target of returning to surplus by 2014-15 remains on a knife-edge, at just $85 million. However, it pointed to larger than expected surpluses in the future, along with lower unemployment and debt.
The economy is now expected to grow at 3.6 per cent in 2015, faster than many of New Zealand's major trading partners.
While the Treasury said interest rate increases were looming, English said households were now better placed than they had been for years.
"There'll be better job security, you've got more productive businesses, you've got an export sector and now a construction sector and a service sector who are more confident than they've been for 10 years," English said today.
"So, as we face the inevitability of rising interest rates in a well performing economy, for those households, it's not news. They've been reasonably, generally, been pretty careful about their debt levels, because of the likelihood that interest rates will go up, and alongside that they've got reasonable prospects for wage increases."
Treasury Secretary Gabriel Makhlouf said growth "is becoming more embedded and broad-based".
The half-year economic and fiscal update made a series of upbeat forecasts including:
- Unemployment is expected to fall to below 6 per cent in 2014/15, and down to 4.7 per cent in 2018.
- While the surplus will not come any earlier, surpluses in the following years are expected to be substantially larger than previously forecast, by about $900m in 2016 and $500m in 2017.
- Debt will fall faster and further then previously expected, dropping to 22.3 per cent of economic output in 2018.
- Net debt is now expected to peak at $65b, $5b less than it was expected to just six months ago.
- Lower than expected debt means the Government will resume contributions to the New Zealand Superannuation Fund in 2019, a year earlier than had been expected.
- The total cost to the Crown of the Christchurch earthquake rebuild falls by about $250m to $14.9b.
- The New Zealand Debt Management Office announced that it was cutting its borrowing programme by about $5b this year.
Despite the brighter picture, the Budget Policy Statement warned that there would be no return to a time when government spending rose with economic growth.
However, English confirmed that even with the current figures and projected surplus, there was expected to be room for $1b of new spending in next May's Budget.
Part of the boost has come from stronger demand driven by the fast turnaround in the numbers moving to Australia, boosting net migration figures.
The boost comes despite slightly weaker demand from New Zealand's trading partners, mainly due to a falloff in mining investment in Australia.
The 2012 half-year update managed only to maintain that the Government was on track to reach its surplus target because of an 11th-hour announcement of petrol tax increases.
This year's release came with no unexpected surprises, although the decision not to reform the way ACC charges are made on vehicle licences, as proposed by the Crown entity was crucial to maintaining the forecast.
English maintained today that it expected to cut ACC levies by $1b in 2015-16.
Labour Finance spokesman David Parker said with strong terms of trade and the Canterbury earthquake recovery underway, it was no surprise that the economy was growing, but it was not down to the Government.
Most Kiwis were missing out on the recovery, he said.
"National will just scrape into surplus next year primarily by overcharging New Zealanders for their ACC levies. Labour ran nine surpluses in a row and left zero net debt, and is committed to a return to surplus.''
''National conveniently seems to have forgotten that the overwhelming majority of New Zealanders aren't better off than they were five years ago. Wages are stagnating and job growth is lagging behind economic growth,'' he said in a statement.