Tuesday 17th December 2013
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The improving economic outlook and higher forecast budget surpluses mean the government will start paying down national debt a year earlier than forecast, in 2016/17, allowing a return to government contributions to the New Zealand Superannuation Fund in 2019.
The Budget Policy Statement, published today by Finance Minister Bill English, says the government will now resume NZ Super Fund contributions from 2019/20, a year earlier than forecast in the May Budget.
A yearly statutory requirement, the BPS also shows that by the end of the official forecast period in 2017/18, the tax take will be rising while benefit costs will be falling slightly as unemployment falls below 5 percent, according to Treasury economic forecasts.
However, English says improving finances won't be allowed to become an excuse for a spend-up, but represents an opportunity to "build a buffer against future shocks."
While the Treasury isn't yet forecasting a recession, English said "there will be one in the next decade", requiring "pretty considered fiscal management".
"Upward pressure on the exchange rate and expected increases in interest rates next year reinforce the need to progress the government's clear economic programme to remove supply bottlenecks and tilt the economy towards savings, investment and exports, and a move away from unsustainable borrowing, consumption and government spending that marked much of the mid-2000's," the BPS says.
"This means maintaining a disciplined approach to spending during the economic upswing even if the economy and the government's finances improve by more than expected."
English told today's media briefing it was time to "move away from the usual political circus where you throw billions of dollars around because you've got it."
The 2014 Budget will allow $1 billion of new spending, with that level growing by 2 percent a year in future Budgets, but only the health and education budgets could expect increases in the 2014 Budget, with all other areas of government activity expected to operate within existing budgets.
English also stressed the need to consider long term fiscal targets in light of the fact that partial privatisations were reducing the total commercial assets held by the government, while government-owned funds such as the Super Fund and ACC increased their ownership of stocks and bonds.
As those investment funds shifted out of debt and into increased holdings of equities, the impact was to "knock a few hundred million dollars" off future budget surpluses because of the way equities are treated in the Crown accounts.
The government would "having a bit of a think" about how to avoid becoming "prisoner" to targets which could be affected by such technical shifts in the value of the Crown's asset holdings, English said.
Asked whether the economy should be growing faster than the 2 percent annual underlying forecast rate, after stripping out the impact of the Christchurch rebuild, English said the major emerging constraints were a lack of housing supply and skills shortages as employment picks up.
"Those are two constraints that will keep the speed limit down in the next wee while. That's why we're working so hard on them," English said. Officials advised that the current "speed limit" for the economy before unleashing inflation was about 2.5 percent growth a year, in part because investment levels had fallen heavily since recessionary conditions emerged in 2007.
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