Positive outlook in PREFU - solid economic growth predicted

Treasurer Bill English said today the Pre-election Economic and Fiscal Update (PREFU) showed the economy was set for solid growth, a view also held by other forecasters.

"Treasury is predicting annual growth to average more than 3% over the next three years. The PREFU shows that Treasury's forecast about where the economy is headed is the same as everyone else's forecasts - up. The June GDP contraction has not significantly changed the outlook.

"This is a positive outlook and we can be pleased with it. The economy has recovered from last year's recession and is set for solid growth, while the fiscal position is robust enough to allow for modest tax cuts and further investment in areas of need.

"Debt falls from 21.8% of GDP to 17.8% over the next three years. Debt is already less than half what it was at the beginning of the decade, when it stood at 51.5% of GDP in 1991/92.

"The sound fiscal outlook makes it possible for us to invest in more social services. Since the Budget the Government has announced a health funding package for next year of an extra $175 million. Education spending has also increased as high school and tertiary rolls grow and extra money for tertiary scholarships was announced in the Bright Future package.

"Next April we will reduce the middle tax rate to 20cents up to a new threshold of $40,000 and that will leave more dollars in people's pockets. The tax reductions have been incorporated into the forecast.

"This fiscal track is now the benchmark against which voters can measure the pre-election taxing and spending promises of political parties.

"The current account deficit is predicted to rise to 8.3% of GDP in the year to March 2000. This is due to the recent oil price rises, some large one-off items such as the frigate and higher direct returns to foreign direct investment. However it is forecast to come down to 5.8% within three years.

"The PREFU is evidence that the Government's economic framework has served us well even under the test of the Asian crisis and two severe droughts.

"We don't want to give the gains away. We need to build on the policies that got us here, policies that are aimed at getting our country internationally competitive and allowing business to get on with the job," said Mr English.