17 May 2018

Budget 2018: Stronger budget surplus forecast

6:54 am on 17 May 2018

Analysis - The government's financial position and spending plans will be in the spotlight today as Grant Robertson delivers his first Budget as Finance Minister.

Grant Robertson looking over the first print of his first budget.

Grant Robertson looking over the first print of his first Budget. Photo: RNZ / Richard Tindiller

A mini-budget in December had Treasury forecasting a budget surplus of $2.5 billion in the June 2018 year, though the latest figures for the nine months to March show the surplus is running nearly $1bn ahead of expectations.

Mr Robertson has been at pains to reiterate the government will stick to its self-imposed Budget Responsibility Rules to run budget surpluses, get net debt down to 20 percent of GDP by 2022 and keep government spending around 30 percent of GDP.

"We owe it to future generations to be fiscally responsible, given the risks New Zealand faces in terms of natural disasters and global economic shock," Mr Robertson told a business gathering in Auckland in early May.

Economists are picking the Finance Minister will deliver on that promise thanks to the growing economy.

"We expect Budget 2018 to show small operating surpluses and a declining net debt profile, mixed with modestly higher spending and investment," ASB chief economist Nick Tuffley said.

The government also pledged to fix "the nine years of neglect" under National, which Mr Robertson claims resulted in underfunded public services and which the previous government hotly disputes.

National leader Simon Bridges said the government books were in good shape thanks to his party and Labour was looking for someone to blame after over-promising at the election.

Certainly, there are fiscal limits to how much Mr Robertson can do immediately.

Outside of the net fiscal cost of $5bn to fund its 100-day plan, the government had $34bn of spending over the next four budgets according to December's mini-budget.

Operational spending made up $21.7bn of that, of which about $15.1bn had been allocated.

That left $6.6bn to play with over four years, though that will be needed to fund such things as pay rises for nurses and teachers.

New capital allowances for new schools and hospitals, transport and other infrastructure totals $12.6bn, about $1bn more than National.

Overall, $42bn has been allocated for capital spending over four years, $10bn more than National.

'We cannot make up for nine years of neglect in one Budget'

However, Mr Robertson does have some extra funding coming in.

Scrapping National's planned tax cuts freed up about $8.4bn over four years to fund its priorities such as the $5.5bn Families Package and $2.6bn free tertiary education initiative.

The government's budget surplus is running $910m ahead of forecasts in December by Treasury.

Mr Robertson and his colleagues have also identified $700m in funding over four years that will be reallocated, plus another estimated $700m from cracking down on tax dodgers and multinationals, and the "Amazon tax" on goods worth less than $400 bought on the internet from overseas.

The Finance Minister also has the ability to borrow more as the government will take two year longer than National promised to get net debt down to its 20 percent of GDP.

Nevertheless, the government is dampening expectations it can satisfy everybody straight away.

"We cannot make up for nine years of neglect in one Budget," Mr Robertson said.

"Our commitments are for three years of government and beyond. This means some things will be phased or will not start until next year."

The Labour-led coalition has already pulling back on its promise to fully implement a $10 reduction for GPs visit from 1 July.

Get the new RNZ app

for ad-free news and current affairs