Government books in good shape, English says

Hon Bill English

Minister of Finance

16 May 2013

Government books in good shape, English says

Choosing sound fiscal and economic policies, and being disciplined in adhering to them, means the Government’s books are in good shape as it presents its fifth Budget, Finance Minister Bill English says.

Budget 2013 forecasts an operating surplus before gains and losses of $75 million in 2014/15 – a sharp improvement from a deficit of $18.4 billion in 2010/11.

Net core Crown debt is forecast to peak at 28.7 per cent of GDP in 2014/15, and decline thereafter. Longer-term projections show net debt dropping to 17.6 per cent of GDP in 2020/21, therefore meeting the Government’s key long-term objective to bring net debt back to no higher than 20 per cent of GDP by 2020.

“This is a remarkable turnaround,” Mr English says.

“We came into office in a recession, were rocked by the global financial crisis, and were then confronted by one of the most expensive natural disasters in history. To now be so close to getting back to surplus and starting to repay debt is a real achievement.

“Projections in Budget 2009, for example, showed that without any policy response net debt would exceed 60 per cent of GDP by the early 2020s unless major changes were made.

“However, although we are making good progress, there is still much to be done. While it was entirely appropriate to take on more debt over the past few years to support the economy and cushion New Zealanders and their families from major shocks, this cannot continue indefinitely,” Mr English says.

“In dollar terms, net debt is still rising by around $130 million a week and is expected to peak at $70 billion in 2016/17. That is around $15,000 for each and every New Zealander. As households know, carrying substantial debt is neither comfortable nor financially prudent.

“The Government is firmly focused on capping, then reducing, this debt. That will be made possible by us sticking to the sound fiscal and economic management that has got us this far.

“The Accident Compensation Corporation’s improved financial performance means the Government is now satisfied that there is scope for significant and sustainable reductions in ACC levies,” Mr English says.

The Government has allowed for ACC levy reductions of around $300 million in 2014/15, increasing to around $1 billion in 2015/16. When combined with the $630 million levy reduction in 2012/13, these proposed changes would amount to around 40 per cent lower ACC levy rates for households and businesses.

“To help the Government achieve its fiscal targets, two other changes have been made to our fiscal parameters,” Mr English says.

• First, the annual operating allowance is now $900 million in Budget 2013, compared with the $800 million signalled previously and will be $1 billion in Budget 2014, compared with $1.2 billion indicated previously. From 2015 onwards, operating allowances will grow by 2 per cent per Budget.

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“These changes to future allowances will mean bigger surpluses and a greater ability to pay down debt.”

• Second, the Government intends delaying the resumption of contributions to the New Zealand Superannuation Fund until its long-term debt target is reached – that is, until net debt is no higher than 20 per cent of GDP.

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“This means Super Fund contributions are now expected to resume in 2020/21 - two years later than projected in last year’s Half Year Economic and Fiscal Update,” Mr English says. “The expected timeframe for resuming contributions is now back to where it was when they were first suspended in Budget 2009.

“This short delay in resuming contributions will not in any way affect New Zealanders’ entitlement to New Zealand Superannuation, either now or in the future.

“The choice is whether we use future cash surpluses to reduce debt to more prudent levels, or whether we put money into world sharemarkets while holding higher debt. The first course is clearly the more responsible one.”

The Budget also confirms there will continue to be no new money set aside for capital spending over this and the following three Budgets. New capital spending will be funded from the Crown’s balance sheet and in particular from the proceeds of the Government’s share offer programme, which are expected to free up $5 billion to $7 billion for new investment in public assets.