Having your cake and eating it too
|New Zealand’s solid economic performance is allowing the Government to have its cake and eat it too. Budget 2017 provided for more spending and put money back in people’s pockets. At the same time, the Government is still projecting growing surpluses and falling net debt over the coming years.
Fiscal projections
The Government’s books are in good shape. Firm economic activity and a focus on cost control has seen the operating balance steadily improving since 2011, with surpluses in each of the past two years. This positive trend has continued into the current fiscal year. In fact, the Treasury has upgraded the projected surplus for FY2017 to $1.6b, compared to a $0.5b surplus in the Half-Year Economic and Fiscal Update (HYEFU) in December.
The surplus is expected to continue growing over the next few years, but at a more gradual pace than previously assumed. The Government is now forecasting an operating surplus of $7.2b in 2021, down from the $8.5b that was forecast in the HYEFU. A key reason for the more gradual improvement in the operating surplus over the coming years is that Budget 2017 has introduced a Family Incomes Package (described below) that includes adjustments to income tax thresholds. While this is assumed to boost activity and spending (which will support growth in tax revenue), the reduction in income tax pulls down core Crown tax revenues by $6.3b over the forecast period.
Core Crown expenses are also expected to grow more rapidly than previously assumed. Budget 2017 allows for around $1.8b of new operating spending expenditure in each of the next four years (up from $1.5b as previously forecast). On top of this, allowances for new spending in future years have also been increased.
Despite the increase in spending, firm economic conditions mean that the Government continues to forecast a decline in debt levels. As a share of nominal GDP, core Crown debt is still forecast to fall below 20% in FY2021, though by slightly less than previously assumed. As already announced, the Government is aiming to reduce net debt to 10-15% of GDP by 2025.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.