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Budget 2016 Home Page Budget Speech - Budget 2016

Responsibly managing the Government's finances

Mr Speaker,

Responsible fiscal management has been the hallmark of this Government's previous seven Budgets.

It is also a feature of Budget 2016.

The surplus target helped us turn the Government's books around. Now our focus is shifting more to debt repayment.

Reducing debt to more prudent levels will give the Government more room to support New Zealanders, and the economy, should we face another economic shock or natural disaster.

The Government's fiscal priorities over the next few years are:

  • Maintaining rising operating surpluses.
  • Reducing net debt to around 20 per cent of GDP in 2020.
  • If economic and fiscal conditions allow, beginning to reduce income taxes.
  • And using any further fiscal headroom to reduce debt faster.

Budget 2016 forecasts confirm the Government is on track and its books are in good shape.

We're continuing to manage our spending carefully. This means government expenditure falls to 29.7 per cent of GDP this year and stays under 30 per cent thereafter.

Modest OBEGAL surpluses are forecast for this year and the next, before rising strongly from 2017/18.

Cash surpluses are forecast from 2018/19, which means the Government will start paying down debt in dollar terms.

Net debt is expected to peak at 25.6 per cent of GDP next year and to fall to 19.3 per cent of GDP in 2020/21.

As a result, New Zealand Superannuation Fund contributions are expected to resume in 2020/21, two years earlier than forecast in the Half-Year Update.

Mr Speaker,

Spending pressures have changed since the last Budget - in part because higher-than-expected population growth has increased demand for public services.

As a result, $600 million a year of new spending previously earmarked for Budget 2017 has been brought forward.

This takes new operating spending in Budget 2016 to $1.6 billion a year on average.

This allowance remains much smaller than those of the previous government, whose eighth and ninth Budgets, for example, contained an average of $4.3 billion a year of new operating initiatives.

As I have mentioned, reducing debt is one of the Government's key priorities.

Therefore, a further $400 million a year previously earmarked for Budget 2017 has been used to reduce debt.

Extra capital spending to fund investment in infrastructure and other public assets is set at $1.4 billion in Budget 2016, slightly lower than previously anticipated.

However, in addition, significant capital spending will be funded from reprioritising within the Crown's balance sheet, taking the total new capital spend in Budget 2016 to $2.6 billion.

In total, these changes reduce Budget allowances for new spending by around $1.2 billion over the next five years, helping to further reduce debt while still investing in public services.

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