It will be an achievement if the government can get its books "near surplus" in 2014/15 after a billion dollar deterioration in the government's forecast financial position in just two months, Finance Minister Bill English says.
A 2014/15 surplus of NZ$370 million picked in February is now projected to be a NZ$640 million deficit, English said in a speech to the Wellington Employers' Chamber of Commerce on Thursday afternoon.
Despite the new forecasts, English said the government was still committed to reaching an operating surplus before investment gains and losses in the 2014/15 year. This would be a significant challenge and require tight control over spending over the next three years, he said.
The government made a big pitch during last year's election campaign on getting its finances back into the black in 2014/15. However, deteriorating global economic conditions, and a lower than expected domestic tax take have seen it constantly revise down its surplus forecasts and future spending committments in order to show the figures reaching that target.
Prime Minister John Key even said on the election trail in October last year the government was still trying to reach surplus a year earlier - 2013/14.
The latest set of projections from Treasury follow Prime Minister John Key announcing earlier this month that English would be running another 'zero' Budget in May, cutting back a planned NZ$800 million operating spending increase.
In January, Key warned the government may have to forego the 2014/15 surplus track if global conditions worsened to such as point that austerity measures needed here for reaching the target led to a "sharp contraction" in demand in the economy.
See English's comments below:
Budget 2012 will set out balanced decisions to ensure the Government remains on track to surplus in 2014/15, Finance Minister Bill English confirmed today.
In particular, it will address a $1 billion deterioration in the forecast operating balance before gains and losses in 2014/15 between the Budget Policy Statement in February and preliminary Budget estimates.
“It’s important that we return to surplus because New Zealand is one of the most indebted countries in the world as measured by our net international investment position,” Mr English told the Wellington Employers’ Chamber of Commerce today.
“We need to start rebuilding a buffer for when the next global crisis comes along. Surpluses give us choices we simply don’t have while we’re running deficits.”
Returning to surplus by 2014/15 is a significant challenge, requiring tight control over spending for the foreseeable future, Mr English said.
“The scale of the challenge was again highlighted in preliminary Budget estimates ministers received in recent weeks.
“They revealed a $1 billion deterioration in preliminary forecasts of the operating balance before gains and losses in 2014/15, compared to the Budget Policy Statement in February. In other words, the preliminary Budget estimates showed a $640 million deficit in 2014/15, compared to the $370 million surplus predicted in the BPS.”
This reflected a number of factors, such as the impact of lower global growth on short-term, New Zealand growth forecasts. This in turn flowed into lower government revenue expectations.
In addition, New Zealand Superannuation Fund revenue and State Owned Enterprises profits had been revised downwards, and finance costs and earthquake costs were revised upwards.
“But ministers remain focused on staying on track to surplus in 2014/15 for all the reasons I’ve outlined,” Mr English said. “They are making decisions to achieve that. As a country, we can’t afford to spend money we don’t have.”
These decisions include:
- Running what will be very close to a zero Budget, meaning little new net government spending in this Budget out to 2014/15.
- Continuing to reprioritise existing spending into higher priority areas to ensure better public services.
- Considering the appropriate level of future operating allowances, while ensuring we can deliver better services.
- Continuing with revenue-enhancing measures signalled in Budget 2011such as fairer tax treatment of employee benefits, new rules for mixed-use assets such as holiday homes, and a new approach for livestock valuation.
- Proceeding with $1 billion of public sector savings over the next three years, as announced in Budget 2011 to ensure chief executives had time to plan. Those savings begin on 1 July this year.
The Budget will also propose changes in the Public Finance Act so there are more checks and balances on ministers’ spending decisions and their long-term effects.
This includes a proposed spending limit to restrict spending increases to population growth and inflation, as set out in the National-ACT confidence and supply agreement.
“So you can see that this Government is serious about getting back to surplus by 2014/15,” Mr English said.
“But I want to stress that while we’re making some challenging decisions to get back to surplus, we will continue with the same balanced approach we’ve adopted for the previous three Budgets.
“We’re keeping up entitlements to welfare and superannuation, and continuing with large programmes like Working for Families and interest-free student loans. We will invest more in health and education. We promised New Zealanders we would do that.
“We’re investing money up front to support New Zealanders out of welfare. We’re also remaining strong on law and order and demanding better, more innovative, public services. This Government has a strong track record in these areas.”