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Budget Policy Statement 2012

Executive Summary

The Government has set out a clear plan for the next three years, which involves returning to budget surplus in 2014/15. This will in turn enable us to start reducing net government debt as a proportion of GDP.

Within these fiscal parameters, the Government's plan involves pushing ahead with a wide-ranging programme of microeconomic reforms; driving better results and better value for money from public services; and rebuilding Christchurch.

Budget 2012 is about sticking to that plan.

The updated fiscal forecasts show we are on track to post a surplus of $370 million in 2014/15, keep net debt below 30 per cent of GDP and reduce this to 20 per cent of GDP by 2020/21.

Given events in Europe, and the weakened outlook for global growth, this surplus is understandably smaller than was forecast in the Pre-election Update. But the Government still remains on its fiscal track.

This Budget Policy Statement confirms operating allowances of $800 million for Budgets 2012 and 2013, returning to $1.2 billion for Budget 2014 and growing thereafter at 2 per cent per annum. To stick to these operating allowances we will continue to reprioritise spending into higher-priority areas and require government departments to find efficiencies as part of their four-year budget plans.

This Budget Policy Statement also confirms net zero capital allowances. New capital spending over the next five Budgets will be funded from the proceeds of the mixed ownership model, which is expected to free up $5 to $7 billion for new investment in public assets through the Future Investment Fund. This is $5 to $7 billion, therefore, that the Government does not have to borrow.

The economic outlook for New Zealand, while somewhat weaker than forecast in the Pre-election Update, remains positive. New Zealand's terms of trade are expected to remain at elevated levels; our largest trading partners are amongst the stronger-performing countries in the world; and the rebuilding of Christchurch will provide a substantial impetus to economic activity over coming years. Nonetheless, there remains a risk that economic events offshore, particularly in Europe, could have a significant negative effect on the New Zealand economy. The Government continues to monitor global events very carefully.

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