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Budget Policy Statement 2017

Executive Summary

The economy continues to strengthen under the Government's programme of consistent economic and fiscal management, and this is driving more jobs and higher wages for New Zealanders.

The 2016 Half Year Economic and Fiscal Update (Half Year Update) shows economic growth is expected to average around 3 per cent over the next five years. By 2020/21, the Treasury expects unemployment to drop to 4.3 per cent, another 150,000 jobs to be created, and the average wage to increase a further $7,500 to $66,000.

While the recent Kaikōura earthquakes have had a major impact on affected families and businesses, they are not expected to disrupt the overall momentum of the economy. However, they do highlight the importance of the Government's fiscal strategy - paying down debt in the good times so New Zealanders can be supported through challenging times.

The Half Year Update forecasts include an initial assumption of $1 billion of net costs to the Government as a result of the earthquakes.

The operating balance before gains and losses (OBEGAL) is expected to be $473 million in surplus this year - including the provision for the earthquake costs - before rising significantly over the forecast period.

Despite rising surpluses, the Government remains focused on keeping tight control of spending so that it can pay down debt and support New Zealanders in the event of a future economic shock or natural disaster.

Net debt is expected to fall to 18.8 per cent of GDP in 2020/21, in line with the Government's target.

The Budget Policy Statement confirms that operating allowances remain at $1.5 billion per year in each of the next four Budgets.

The capital allowance has been increased from $900 million to $3 billion in Budget 2017 and to $2 billion in future Budgets to provide for a number of high quality infrastructure and investment projects.

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