Strong economy, careful spending gives $12bn of surpluses
The Government is forecast to run $12 billion worth of surpluses across the four years to 2023/24 as the economy continues to grow.
The surpluses will help fund day-to-day capital requirements each year. These include fixing leaky hospitals, building new classrooms to cover population growth and take pressure off class sizes, and putting aside savings in the Super Fund for future retirement costs.
The new forecasts are in the Treasury’s 2019 Half Year Economic and Fiscal Update. This was released alongside the Government’s $12 billion plan for new infrastructure investment to future-proof the economy, and the 2020 Budget priorities.
Across the four years from 2020/21 to 2023/24, the annual surplus is forecast to rise to 1.5% of GDP. This delivers a total of nearly $12 billion of surpluses.
“The Government has committed to running a sustainable surplus across an economic cycle, and today’s forecasts show we are delivering on that,” Finance Minister Grant Robertson says. The Government delivered $13 billion of surpluses in its first two years in office, which has been invested in capital.
Rising surpluses are supported by a growing economy. The economy is forecast to grow on average at 2.5% over the next four years. This is stronger than countries we compare ourselves to, like Australia, the UK, the US and Canada.
Unemployment is also forecast to remain around its current low rate of 4.2%. Wage growth is set to continue its strength under the Coalition Government, averaging 3.5% per year, higher than inflation of about 2%.
“Growth forecasts for the current 2019/20 year are softer at 2.2%, highlighting the impact global headwinds like the US-China trade war and Brexit uncertainty are having on New Zealand’s small, open economy.
This has contributed to a small forecast OBEGAL deficit of $0.9 billion, or 0.3% of GDP, in the current 2019/20 year. The following four years are set to deliver $12 billion of surpluses.
“A small deficit in the current year is not surprising, given the impacts global headwinds are having on confidence here. The surpluses forecast over the next four years show we have a plan to keep the books in good shape.”
The global situation has seen interest rates fall around the world, including in New Zealand. This has also impacted this year’s OBEGAL position due to higher forecast ACC costs as a result of expected claims being valued based on a lower interest rate. Overall, ACC results had a $0.7 billion impact on the forecast 2019/20 OBEGAL.
The Government inherited net debt at 22.9% of GDP. The forecasts show net debt of 21.5% of GDP in 2021/22, falling to 19.6% in 2023/24 – within the new 15%-25% range. This includes the impacts of the additional $12 billion infrastructure investment that the Government announced today to future-proof the economy through a package of new transport, education and health infrastructure.
The books today also highlight stronger wage growth under the Coalition Government. The stronger wage outlook has led to an increase in forecast spending on assistance like NZ Super and benefit payments, as these are linked to average wages.
“This shows that the growing economy under this Government’s Economic Plan is benefiting all New Zealanders – not just those at the top,” Grant Robertson says.