Summary
Choosing sound fiscal and economic policies, and being disciplined in adhering to them, means the Government's books are in good shape. The fiscal outlook has improved markedly over the past few years, but a lot of work is needed to make the forecasts a reality, particularly when it comes to reducing debt.
This Fiscal Strategy Report confirms the Government's commitment to return the operating balance to surplus in 2014/15 and get net debt down to more prudent levels.
Budget forecasts show a total Crown operating surplus before gains and losses of $75 million in 2014/15. Longer-term Budget projections show net core Crown debt dropping to 17.6 per cent of gross domestic product (GDP) in 2020/21, in line with the Government's target.
The Government has used its balance sheet to support the economy, and support New Zealanders, through the worst of the recession, the global financial crisis and the Canterbury earthquakes.
That has been the appropriate response to those challenges. But, as households around the country know, carrying substantial debt is neither comfortable nor financially prudent. So the build-up in debt has to be reversed, and the Government is committed to running cash surpluses and paying off debt. That requires an ongoing commitment to restrain spending into the future, as the economy continues its recovery.
At the same time, the Government is advancing its programme to build a more productive and competitive economy, deliver better public services and support the rebuilding of Christchurch.
Three key changes have been made to the fiscal parameters, compared to what was outlined in the most recent Budget Policy Statement (BPS).
First, the operating allowances for new spending have been slightly adjusted. Operating allowances are now $900 million in Budget 2013, $1 billion in Budget 2014, and thereafter grow at 2 per cent per Budget. This change to future allowances will mean less spending, bigger surpluses and a greater ability to pay down debt.
Second, the Government intends to delay contributions to the New Zealand Superannuation Fund (NZS Fund) until the long-term debt target is reached - that is, until net debt is no higher than 20 per cent of GDP. This means that NZS Fund contributions are expected to resume in 2020/21 - two years later than was projected in the most recent Half Year Economic and Fiscal Update.
Third, the Government is now satisfied there is scope for significant reductions in Accident Compensation Corporation (ACC) levies. Levy reductions will reduce total Crown revenue, and this reduction is built into the Budget forecasts.
