Government on track for 2014/15 surplus

The Government is on track to return to surplus in 2014/15, with the recovery continuing to pick up pace, Finance Minister Bill English says.

Treasury today released the Pre-Election Economic and Fiscal Update (PREFU) which forecasts average annual growth of almost 3 per cent between 2012 and 2016, more than 150,000 new jobs over the forecast period and strong growth in wages and household incomes.

"The Government has put in place a comprehensive programme over the past three years to improve the economy’s competitiveness and build faster growth.

"The economy has now grown in eight of the last nine quarters and growth in the first half of this year has been stronger than Budget 2011 forecasts. This has contributed to the creation of 43,000 new jobs in the past year – 20,000 more than forecast at the time of the Budget,” Mr English says.

"A solid growth outlook, combined with the Government's responsible economic management, has ensured we remain on track to move from a forecast deficit of $10.8 billion in the current year to a surplus of $1.5 billion in 2014/15.

"Getting back to surplus as soon as possible is one of the most important things the Government can do to lift national savings and rebalance the economy towards our productive sectors.

"However, while New Zealand is relatively well placed, the global waters are getting rougher. This is reflected in Treasury's forecasts for trading partner growth, which have been revised downwards.

"As a result, growth is forecast to peak slightly lower than expected in the Budget, but off a higher base. Growth of 3.4 per cent is still expected in the March 2013 year and average almost 3 per cent a year across the forecast period.

"That growth outlook underpins Treasury's forecasts of more than 150,000 new jobs and average annual wage growth of almost 4 per cent between 2012 and 2016. In the Budget, Treasury predicted an extra 170,000 new jobs over the forecast period. The new estimate of 150,000 jobs recognises that actual jobs are already 20,000 ahead of Budget forecasts.”

The lower global growth outlook is expected to keep interest rates lower for longer - reducing financing costs for mortgage holders, businesses and the Government.

"While the outlook for many developed countries has weakened, New Zealand is expected to benefit from our growing trade links with Australia and the faster-growing Asian economies, which now take about 60 per cent of our exports.

"The Canterbury rebuild will also support growth, with Treasury revising its damage estimate from the earthquakes from $15 billion to $20 billion, meaning the rebuild will be longer and contribute more to economic activity.

"Household saving is expected to continue to strengthen after becoming positive in the past year for the first time in over a decade. This will have a dampening effect on growth in the near term, but build a stronger platform for future growth.

"This year's PREFU is in stark contrast to that delivered three years ago, which revealed a decade of deficits and sharply rising debt. By December 2008 those forecasts had turned into never-ending deficits and ever-rising debt.

"The Government has worked hard to turn those forecasts around, while managing the many challenges we have faced along the way.

"It's crucial we stick to our programme of responsible financial management and policies that build a more competitive economy if we are to make the most of the opportunities that lie ahead," Mr English says.

Economic and fiscal data at a glance