Capital expenditure absorbs operating surpluses

Indian Newslink Budget Special 1

Wellington, May 25, 2017

Finance Minister Steven Joyce presented his first Budget in Parliament a few minutes ago. This is his first Budget as Finance Minister and the Ninth for the National Party since occupying the Treasury benches in November 2008. We will bring updates continuously over the next few hours and conclude with our own exclusive analysis of the government’s Fiscal Policy later tonight.

-Editor

Steven Joyce

The Government’s programme of responsible fiscal management is delivering for New Zealanders, with rising surpluses and falling debt improving our resilience and giving us more opportunities to invest in our future.

New Zealand’s steadily strengthening economy is allowing us to provide the public services and infrastructure needed for a growing country.

Strong Economic Outlook

Spending is under control, and a stronger economic outlook means revenue is broadly in line with the Half-Year Update and considerably stronger than expected in Budget 2016, despite our decision to adjust tax thresholds and lift income support through the Family Incomes Package.

The Treasury’s latest forecasts show surpluses growing from $1.6 billion in 2016-2017 to $7.2 billion in 2020/2021.

These surpluses are significant, but they are necessary to meet the cost of the very large new capital investment to which the Government is committed.

Surpluses absorbed

Our new capital spend of $4 billion this year and a total of $11 billion over the next four budgets, in addition to already planned capital expenditure, absorbs virtually all the cash generated from the operating surpluses.

The forecasts also show the Government is on track to meet its target of reducing net debt to around 20% of GDP in 2020, with net debt expected to be at 19.3% of GDP by 2020-2021.

New Zealand Superannuation Fund contributions are expected to resume as scheduled in 2020-2021.

Reducing net debt

As previously announced, the Government has added a new fiscal target of reducing net debt to between 10% and 15% of GDP by 2025, after the 2020 target has been achieved.

We have learnt from recent history with the Global Financial Crisis and the Canterbury earthquakes that shocks can come along at any time.

Now is the time to get net debt down to ensure we have the capacity to absorb, and respond, to the next challenges New Zealand will face.

Budget 2017 includes new operating spending of $1.8 billion per year, plus $2 billion per year cost of the Family Incomes Package. As previously signalled, the cost of the Care and Support Workers Pay Equity settlement has been treated as separate to the allowances.

Future operating allowances have been increased with the Budget 2018 operating allowance set at $1.7 billion and subsequent allowances increasing at 2% over the forecast period.

Of course the only reason we get to make these decisions is because we have a strong and growing economy built on a strong economic plan.

The most important message in this budget is the importance of maintaining our focus on growing the economy and sticking to the plan so that we can keep investing in our future.

1. Half Year Economic & Fiscal Update
2. Budget Economic & Fiscal Update