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Budget 2015 Home Page Fiscal Strategy Report - Budget 2015

Summary

The Crown's books are in good shape as the New Zealand economy grows and the Government maintains its careful and responsible management of public spending. At the same time, the Government is setting challenging results for the public sector to achieve and seeing good progress across a range of social indicators.

The Government has five fiscal priorities:

  1. Returning to surplus this year and maintaining surpluses in the future
  2. Reducing net government debt to 20 per cent of GDP by 2020, including repaying debt in dollar terms in 2017/18
  3. Further reducing Accident Compensation Corporation (ACC) levies on households and businesses
  4. Beginning to reduce income taxes from 2017 with a focus on low and middle-income earners, and
  5. Using any further fiscal headroom – including from positive revenue surprises – to get debt down to 20 per cent of GDP sooner than 2020.

The Government is making good progress on all these fiscal priorities.

Mostly as a result of lower-than-expected inflation flowing through to lower-than-expected revenue, the forecasts now show a deficit in the operating balance before gains and losses (OBEGAL) of $684 million in 2014/15 followed by a small surplus of $176 million in 2015/16, rising to a surplus of $3.6 billion in 2018/19.

The Government does not intend to make cuts to services, programmes or income support simply to chase a surplus. The factors that have reduced Government revenue - low inflation and low interest rates - are good for most households and businesses, and the overall fiscal position remains very positive.

In particular, net core Crown debt (net debt) is projected to reach 20 per cent of GDP by 2020, in line with the Government's key long-term fiscal objective.

The Government has also provisioned for $375 million of ACC levy reductions in 2016 and a further $120 million in 2017.

Operating allowances remain at $1 billion for Budgets 2015 and 2016 before rising to $2.5 billion in Budget 2017. This higher allowance in 2017 provides options around modest income tax reductions, should fiscal and economic conditions allow.

New capital spending in this Budget and the next will be funded by reprioritisation, in particular by drawing on proceeds from the Government share offers through the Future Investment Fund (FIF).

This Fiscal Strategy Report shows the Government's ongoing commitment to careful fiscal management. This includes investing in delivering better public services and getting better results for New Zealanders.

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