The government has lopped three years off the amount of time it expects government books to take return to budget surplus.
Budget 2010 confirmed the previously forecast nine years of deficit have been trimmed back to six, with the government’s books expected to be in the black by 2016.
But until then, New Zealand still has the burden of borrowing an average $240 million a week for the next three years before it will reduce.
With the recession receeding, Finance Minister Bill English said Budget 2010 was all about strengthening the recovery.
The centrepiece tax package – the biggest tax reform in 25 years –will leave someone on the average wage about $15-a-week better off. That’s expected to add about 1% to the size of the economy by 2017 – at a conservative estimate.
Budget figures at a glance
• After contracting in the last two years, the economy is forecast to grow by about 3% over each of the next four years.
• An operating deficit before gains and losses of $8.6 billion forecast for
2010/2011 – up from $6.9 billion the previous year, partly due to timing issues around the tax package, which will be fiscally neutral over the next year.
• Net crown debt, expected to be $26.6 billion this year, is forecast to almost treble to $63 billion by 2014
• As a percentage of GDP, net crown debt is forecast to rise from 14.1% of GDP in the current year to a peak of 27.4% in 2015 before falling.
• New spending is capped at $1.1 billion, with subsequent increases in the allowance restricted to 2% annually.
• Total crown expenses are forecast to rise by $5.9 billion to $70.7 billion in 2010/2011 – including adjustments to welfare benefits and NZ Super and higher government finance costs.
• An additional $1.45 billion in capital spending is included in the Crown accounts over the forecast period.
• Gross domestic product is forecast to increase to 3.2% in the year to March 2011, compared with the 2.4% predicted in December. Despite the better growth outlook, by 2012 GDP per capita will still be about 5% below Budget 2008 forecasts.
Biggest tax reform in 25 years
From October 1:
• All personal tax rates cut
• GST rises to 15% and NZ Superannuation, Working for Families and benefit payments will all rise
From the start of the 2011/2012 financial year, the company tax rate will fall to 28% and tighter rules around the taxation of investment property take effect.
At all taxable income levels, the across-the-board personal tax cuts will more than offset the rise in GST.
Improved public services
Another $1.8 billion has been freed up over the next four years for healthcare, education and law and order. This is in addition to the $2 billion provided for in the 2009 budget.
Investment in research, science and technology
The government has allocated $321 million over four years for new science, research and technology initiatives. This includes a $234 million boost for supporting business R&D including technology development grants for firms doing significant R&D.
Domestic debt programme
The New Zealand Debt Management Office intends to issue up to $12.5 billion of bonds in 2010/2011
Total issuance over the forecast period is $2 billion lower than previously announced in the December 2009 half-year update, due to improvement in the fiscal outlook.
Budget 2010 includes forecast bond programmes of $10.5 billion in 2011/2012, $10 billion in 2012/2013 and $6 billion in 2013/2014
Economic growth: a gradual recovery
After contracting in the last two years, the economy is forecast to grow by about 3% over the next four years.
The recovery is being driven by stimulatory monetary conditions, a stronger global economy, a rise in export volumes and prices and higher confidence.
Mr English said he also expected a positive affect on economy from the significant tax reform in the Budget
But he cautioned recovery would be gradual.
“Uncertainty continues to surround the outlook, particularly the strength of recovery and whether imbalances in the economy that built up in the previous expansion will adjust.
“There are also growing risks associated with recent developments in Europe related to sovereign debt.”
Mr English said the Government was focussed on shifting economy away from borrowing and consumption and Government spending and towards saving, investing and exports.
Thu, 20 May 2010