24 May 2001
Fiscal position prudent, economic outlook benign
"Budget 2001 has two principal objectives: to consolidate the Government's reputation as a prudent fiscal and economic
manager and to advance our policy agenda," Finance Minister Michael Cullen said.
"The budget is vigilant on new spending. Every initiative had to be justified, and several worthy proposals had to be
deferred. This is the tightest of the three budgets the Labour-Alliance Government will present this term.
"Net new spending has been limited to $692 million. This compares with around $1.26 billion in Budget 2000 and with the
$815 million we are setting aside now for next year's budget.
"The Government was concerned that the spending allocation for Budget 2002 should be realistic. I am satisfied that $815
million is credible although it will demand continuing firm discipline from Ministers," Dr Cullen said.
"The risks the world slow down poses to New Zealand are acknowledged in the budget documents. But I share the Treasury's
view that the economy is well-placed to absorb the shock and to continue to grow.
"Although the Treasury has revised down its growth track since the December Economic and Fiscal Update [DEFU], it is
still projecting growth of 2.9 per cent on average over the next four years.
"And the general outlook is for a benign mix of circumstances - unemployment remaining low at around 5 per cent,
inflation under control and the current account deficit dropping steadily to 3.3 per cent of gross domestic product by
the end of March, 2005," Dr Cullen said.
The fiscal picture was also strong with the Budget showing a pattern of rising surpluses through the forecast period to
$3.7 billion in the 2004-05 year.
The forecast surplus for the current year was $641 million. However the position as reflected in the Operating Balance
Excluding Revaluations and Accounting Changes - OBERAC - was significantly stronger.
"It shows a surplus of $1.7 billion. This is higher than the DEFU forecast of $765 million and reflects higher than
expected tax revenues and the $140 million from the sale of the spectrum licences.
"But these factors were overwhelmed by a combined $1.1 billion increase in liabilities for the Accident Compensation
Corporation and the Government Superannuation Fund.
"The new OBERAC measure provides a more accurate guide to the quality of the Government's fiscal stewardship because it
strips out these revaluation effects which reflect technical assumptions rather than real money, and which are
predominantly interest rate driven so tend to balance out over time.
"A surplus of $1.4 billion is forecast for the coming 2001-02 year followed in the subsequent three years by surpluses
of $2.4 billion, $3 billion and $3.7 billion respectively.
"These are around $650 million lower on average than the DEFU forecasts. The difference reflects a reduction in
projected tax revenues due primarily to the slowing world economy, and increased spending provisions," Dr Cullen said.
The Government had raised the $5.9 billion fiscal cap to $6.125 billion and had increased the indicative provision for
the years 2003-04 and 2004-05 from $800 million to $900 million.
"This adjustment is extremely modest in the context of total government spending. This is reflected in the fact that
expenditure relative to GDP is expected to fall steadily over the forecast horizon.
"By 2003-04 it is projected to drop to below 33 per cent of GDP - the lowest level since the late 1970s.
"Net debt is tipped to remain relatively stable at around 18 percent of GDP. These are the lowest levels achieved in 20
years and would be even lower if the debt calculations included the assets in the New Zealand Superannuation Fund.
"Taking these into account, the comparable figure is a fall to 13.1 per cent," Dr Cullen said.