Fiscal Balance in New Zealand
New Zealand - Fiscal Balance
Government presents 2015 budget
On 21 May, the government announced the budget for FY 2015, which runs from July 2015 to June 2016. According to the document, New Zealand will return to a core operating surplus (OBEGAL)—excluding investment gains and losses—of an estimated NZD 0.2 billion or 0.1% of GDP, which is up from the NZD 0.7 billion deficit (equivalent to 0.3% of GDP) estimated for the current fiscal year. The deficit for FY 2014 undershot the NZD 0.4 billion surplus that was forecast in 2014 budget. The result was mainly due to low inflation, which trimmed down nominal revenues. The government affirmed its commitment to achieving a fiscal surplus of NZD 1.5 billion by the end of FY 2016 (ending June 2017) and it projects that by 2020 net core Crown debt will be below 20.0% of GDP.
In the draft budget, the Treasury pointed out that growth prospects are positive for the coming years and that it expects that this will translate into increased tax revenue. The Treasury projects the economy to grow an average of 2.8% over the next four years. In particular, it expects a solid GDP growth of 3.2% in 2015 and 3.3% in 2016. The government expects a slight slowdown to a growth rate of 2.8% starting in 2017. The Treasury expects total revenues to increase by 0.4 percentage points in FY 2015 to approximately 39.4% of GDP, while it plans to decrease total expenses by 0.7 percentage points to approximately 39.5% of GDP. Operating spending will remain at 2015’s NZD 1.0 billion in the 2016 budget, but it will be increased to NZD 2.5 billion in the 2017 budget and NZD 1.5 billion in the 2018 budget. New spending will be directed to several areas including education, health and welfare, among others.
The main policy announcement was the start of a NZD 790 million Child Hardship Package program, which will increase benefits for families with children and provide childcare subsidies. NZD 1.7 billion will also be devoted to deliver better public health services to meet the needs of a growing and aging population. Regarding revenues, the Treasury plans to remove the NZD 1,000 KiwiSaver kick-start payment and introduce a new levy to fund passenger-related customs activities at the border.
In the draft, the government underlined that rebuilding Christchurch remains at the center of the government’s plans, and that the government is expected to cover NZD 16.5 billion of the reconstruction costs, which are estimated to total NZD 40.0 billion. Regarding inflation and 2015 budget’s impact on monetary policy, the Treasury noted that, “low inflation, assisted by the Government's fiscal restraint, will help maintain strong real wage growth and keep interest rates lower for longer. Upward pressure on interest rates expected in the last Budget has fallen away considerably.”
FocusEconomics Consensus Forecast panelists are broadly in line with the government. They expect the fiscal deficit to be 0.2% of GDP this year and foresee a fiscal surplus of 0.3% of GDP in 2016.
New Zealand - Fiscal Balance Data
|Fiscal Balance (% of GDP)||-2.0||-1.1||0.3||0.9||1.6|
5 years of economic forecasts for more than 30 economic indicators.
New Zealand Facts
|Bond Yield||2.11||1.20 %||Mar 11|
|Exchange Rate||0.68||-1.69 %||Mar 11|
|Stock Market||4,156||0.11 %||Mar 11|
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