WELLINGTON, May 16: New Zealand’s government charted a more optimistic economic outlook on Thursday as it raised its forecast for budget surpluses on the back of moderate growth, and said it would start spending more on new policies.
The government had delivered ‘zero budgets’ for the past two years, with no new spending, as it battled a weak growth outlook and a slide in its tax take.
But Finance Minister Bill English said the economy has perked up, and government finances were on a sounder footing to allow new spending.
‘This year there has been a bit more room to move in the budget,’ English told reporters.
The Treasury forecast a slightly bigger surplus in 2014/15, the long-standing date for a return to the black, of NZ$75 million ($62 million) from NZ$66 million forecast in last December’s mid-year update.
The deficit for the current year to June 30 was cut to NZ$6.3 billion from a previous NZ$7.3 billion forecast, but the forecast deficit for the 2013/14 fiscal year was held steady at NZ$2 billion.
The Treasury revised up its growth for the year to March to 2.5 percent from 2.3 percent in the December update, but saw growth at 2.4 percent in March 2014 from 2.9 percent.
The department estimated that the drought which hit the North Island in early 2013 would cost the economy about NZ$1.4 billion or 0.7 percent of GDP.
However, the pick up in growth, driven by strong commodity prices and earthquake rebuilding in the Christchurch region, will see a gradual fall in borrowing over the next four years.
Government net debt is seen peaking at 28.7 percent of GDP in 2014/15, from an earlier forecast of 29.5 percent in the same year.
English also said that the overvalued New Zealand dollar, continued to weigh on the economy, limiting export-driven growth, but the country was still outperforming most other developed economies.
In December, the government reiterated the need for spending controls and cut growth forecasts as the economy went through a soft patch.
But data this year has shown a lift in business and consumer confidence, moderate growth in retail sales, building consents, record house prices, strong commodity prices, and a fall in unemployment.
‘This budget highlights how different New Zealand is to the rest of the developed world, which is mostly mired in fiscal austerity, while we have the luxury of arguing about putting a little bit more into education,’ said Bank of New Zealand head of research Stephen Toplis.
English said NZ$900 million had been set aside for new spending in the coming fiscal year, against an original planned NZ$800 million.
However, spending growth in later years has been limited to NZ$1 billion a year from NZ$1.2 billion previously advised.
The budget showed increased spending on health and education, and a planned NZ$2.9 billion investment in new and refurbished houses by the state housing agency over the next four years.
English confirmed that the power company, Meridian Energy Ltd, valued at more than NZ$6 billion, would be the next state-owned corporation to be partially privatised, with up to 49 percent to be sold in the second half of this year.
Levies on individuals and businesses to fund the state accident insurance scheme were set to be reduced by as much as NZ$1.3 billion over the next two years.
He said the government would delay the resumption of payments of about NZ$2 billion a year to the state pension investment fund until net debt falls to 20 percent of GDP, probably around 2021.
English confirmed that the government had formally agreed with the Reserve Bank or New Zealand a range of macro-prudential tools, such as capital buffers and loan to value ratios, to cope with a strong housing market or asset bubbles.
New Zealand relies heavily on offshore lenders to fill its budget gap and has repeatedly reaffirmed its surplus plan to defend its double-A rated credit ratings. Moody’s still rates New Zealand triple-A.
The $180 billion economy is largely driven by agriculture exports such as dairy, meat, wool and timber and about 40 percent of its exports goes to Australia and China.
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