New Zealand: Government presents 2013 budget
May 16, 2013
On 16 May, the government announced the budget for the fiscal year 2013, which ends in June 2014. According to the document, the core operating deficit (OBEGAL) - which excludes investment gains and losses - is expected to narrow to NZD 6.3 billion or 2.9% of GDP, down from the NZD 9.2 billion gap (equivalent to 4.4% of GDP) estimated for the current fiscal year. In addition, the government affirmed its commitment to achieve a fiscal surplus of NZD 75 million by the end of the fiscal year 2014 (ending June 2015).
In the draft, the Treasury pointed out that economic activity is showing signs of improvement and so is tax revenue. The government projects the economy to grow 2.5% this year, before slowing slightly to 2.4% in 2014 and accelerating to 3.0% in 2015. Against this backdrop, the Treasury expects total revenues to increase by 4.8% in the fiscal year 2013 to approximately 29.8% of GDP, while it plans to increase total expenses by 3.6%, totalling approximately 33.5% of GDP. In addition, the Treasury will disburse an extra NZD 900 million per year, an operating allowance, which contrasts the two last budgets, where lower-than-expected revenues forced the government to make no net increase in spending. Moreover, the government announced reductions in ACC (Accident Compensation Corporation) levies on households and businesses of around NZD 300 million, starting in the fiscal year 2014, and of NZD 1.0 billion in the fiscal years 2015 and 2016. According to analysts, reducing ACC levies amounts to a tax cut in disguise.
In the draft, the government underlined that the rebuilding of Christchurch remains at the centre of the government's plans, with the total reconstruction cost amounting to NZD 15.2 billion, which is up NZD 2.1 billion from previous estimates. In addition, the Treasury and the Reserve Bank of New Zealand signed a memorandum of understanding, in which the Central Bank is allowed to use macro-prudential tools, strictly for the purpose of maintaining stability in the financial system.
FocusEconomics Consensus Forecast panellists are less optimistic than the government and anticipate that the fiscal deficit will reach 3.3% of GDP this year. In addition, participants do not share the government's long-term view and expect a fiscal deficit of 0.3% of GDP in 2015.
Author: Ricardo Aceves, Senior Economist