17 May 2018

Budget 2018: The fiscal nitty-gritty

4:49 pm on 17 May 2018

The government is forecasting lower surpluses than it previously estimated, despite expecting robust economic growth.

Budget day at the House

Photo: RNZ / Richard Tindiller

The economy is expected to grow at an average 3 percent over the next five years, underpinned by a rising population, low interest rates, increased government spending and a stronger global economy.

Treasury is forecasting Budget surpluses to rise gradually, from an improved $3.7 billion in the year ended 30 June, 2018, to $7.3bn in 2022.

It has forecast net debt to fall to 19.1 percent of gross domestic product (GDP) by 2022.

"Treasury's forecasts released today show how this government is managing the books responsibly," Finance Minister Grant Robertson said.

"This means we can inject much-needed investment into essential public services and pay down debt at a responsible rate."

The surpluses are smaller than predicted in December, due to a boost in new spending.

Operational spending remains at $2.8bn in the year ended 30 June 2019, but rises from $1.9bn to $2.4bnin the following three years, with more going to health, education and housing.

Capital spending has been increased from $3.5bn to $3.7bn next year, $3.4bn the year after, and $3bn from 2021 onwards - an increase of $300m in each year.

The total increase in operating and capital allowances will see net debt rise by $5.3bn.

Treasury is forecasting growth will rise from 2.8 percent in the June 2018 year to peak at 3.6 percent in late 2019, before easing back to 2.5 percent by 2022, due to rising interest rates and slowing jobs growth.

Higher government spending, such as the $5.5bn families package, and $2.1bn Kiwibuild programme, will support growth.

An additional 203,000 people are expected to be in work by 2022, although with population growth, unemployment will only edge down from its current rate of 4.4 percent to 4.1 percent. Wage growth is set to rise.

Inflation is to forecast to remain low for much of the period, and increase gradually to 2 percent.

A stronger economy will boost the tax take, rising $20bn (25 percent) over the next five years to $99bn in 2022.

Government spending will increase by nearly $17bn (20 percent) to $98 billion.

That means surpluses will more than double over the period to 2022.

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