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Rising tax take gives government more wiggle room, Joyce says

Thursday 27th April 2017

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New Zealand's rising tax take, which was up 7.7 percent in the year to Feb. 28, has given the government room to beef up its infrastructure spending programme and target an aggressive debt reduction target, says Finance Minister Steven Joyce. 



The minister announced a $2 billion boost to additional infrastructure spending over the next four years to $11 billion, and wants to almost half net debt as a proportion of the economy by 2025 in his first pre-Budget speech in charge of the Crown's books, and still has plans for potential tax relief and improving public services up his sleeve. 



Speaking to media after a speech to the Wellington Chamber of Commerce, Joyce said he didn't expect a "massive" fiscal impulse from the spending and that it isn't his plan to stimulate the economy, which expanded 2.7 percent in the December quarter from a year earlier. The Treasury was projecting a 0.9 percent fiscal impulse to the economy in the 2017 financial year and 0.1 percent in 2018 in the December half-year economic and fiscal update, before tighter spending in later years kicked in, leaving the Crown's involvement broadly neutral through to 2021. 



Joyce declined to go into detail on the infrastructure spending beyond the $812 million announced for reinstating State Highway 1 north and south of earthquake-stricken Kaikoura, however he told the Wellington audience that health and education would receive some of the funds. 



The plan to reduce the medium-term net debt target to 10-to-15 percent of gross domestic product wouldn't stop the government from resuming contributions to the New Zealand Superannuation Fund once it reached 20 percent of GDP, he said. The government stopped paying into the Super Fund in then-Finance Minister Bill English's first budget in 2009, canning planned tax cuts at the same time, as it contended with a local recession during the depths of the Global Financial Crisis. Net debt was $61.33 billion, or 23.5 percent of GDP, as at Feb. 28, while finance costs shrank 3.3 percent to $2.35 billion in the eight months through February from the same period a year earlier. 



Joyce said the primary goal of the new debt target was to give the government enough resilience to deal with two major external shocks in the same way the National-led administration had to grapple with the Canterbury earthquakes coming just two years after the nadir of the GFC. 



The new debt target comes as interest rates around the world start rising with the largest central banks scaling back their asset purchase programmes and in some cases hiking rates. The yield on New Zealand's 10-year government bond rate was recently at 3.09 percent, up 2.17 percent in August last year when they fell to the lowest in at least 20 years, according to Reuters data. 



"The primary driver is to have that capacity. Obviously, if you have lower debt, particularly if you have a couple of major shocks, you have better interest rate profile," he said. 



Joyce said he wouldn't expect interest rates to stay where they are for the next five or six years and that the things depressing them for so long "are probably getting to the end of their run."





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