Commitment to cutting deficit, return to surplus

The Government remains committed to halving the budget deficit this year – and again next year – before returning to surplus in 2014/15, Finance Minister Bill English says.

The Crown’s accounts for the year to 30 June 2011 show net expenses of $9.1 billion for the Canterbury earthquake last year made up almost half of the Government’s $18.4 billion operating deficit before gains and losses.

“This is an unusually large deficit, but it includes the significant costs of the Canterbury Earthquake Recovery Fund and the updated assessment of Earthquake Commission costs,” Mr English says.

“Setting aside the earthquakes, we’ve made good progress compared to estimates five months ago in the Budget. A combination of higher than forecast revenue and lower than forecast spending has reduced the underlying deficit by about $2.8 billion.

“However, this was more than overshadowed by the higher earthquake costs.”

Despite the Canterbury earthquakes, Treasury notes economic growth was better than expected in the first half of 2011, driven by a recovery in domestic demand and higher export prices.

“This flowed through to tax revenue, which rose for the first time in three years due to higher income, private consumption and business profits,” Mr English says. “And despite the earthquakes, management of public sector finances continues to improve.

“In the current uncertain global environment, it’s important the Government remains focused on its plan to return to surplus faster and building a competitive economy so we can sell more to the world. This is certainly not a time to be promising to borrow more, spend more and tax more.”

Mr English confirmed today that the Treasury will issue the Pre-Election Fiscal and Economic Update (Prefu) on Tuesday 25 October. Prefu lockup details are available at http://www.treasury.govt.nz/budget/forecasts/lockup