By Bernard Hickey
Finance Minister Bill English has announced the May 16 Budget for 2013/14 will confirm the government is on track to hit its target of a budget surplus by 2014/15.
He also signalled plans for continued tough budgets after 2014/15 by confirming the government's plans for rapid debt reduction from 30% of GDP in 2017 to 20% of GDP by 2020.
"I can confirm that it (the May 16 Budget) will show the Government remains on track to surplus in 2014/15, as a result of our careful management of the accounts," English said in a speech to the Wellington Employers’ Chamber of Commerce.
“That is a considerable achievement – and a significant turnaround in the space of just a few years. Just two years ago, we ran an NZ$18.4 billion deficit, half of which was the cost of contributing to the rebuild of Canterbury," English said, adding however that returning to surplus was just the first part of the government's plan.
“We will still have some way to go in rebuilding the fiscal buffers that have been run down in recent years. That means fiscal responsibility will be permanent,” English said, adding the government's second objective was to bring down the government's net debt to 20% of GDP by 2020.
“In the Half-Year Update in December, net government debt was forecast to be almost 30 per cent of GDP in 2017. So you can see there is quite a challenge in front of us to meet the 20 per cent debt target by 2020,” English said.
The Reserve Bank pointed in its March Monetary Policy Statement to the government's plans to tighten fiscal policy as a factor "dampening momentum" in the economy. It said the tightening was equivalent to 3.2% of GDP over the next four years.
“It means we will need to maintain firm expenditure control beyond our return to surplus, so we can run big enough surpluses to have choices about paying down debt and investing more in priority public services," he said.
“It is also a critical element of building a more internationally competitive economy. By reducing the resources the Government absorbs, we are making room for private investment while minimising upwards pressure on interest rates and the exchange rate. Budget 2013 will reflect those realities," he siad.
“Conventional monetary policy, predictable fiscal policy and a sound financial system are precious advantages in an unstable world. We will hold on to them.”
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