After chalking up a single Budget surplus the Government’s books will have dipped back into deficit, but the spluttering start is forecast to gain momentum in the years ahead.
Finance Minister Bill English has also moved to give a $1 billion boost to capital spending next year, while leaving wriggle room for the Government’s spending programme to be brought forward.
In its Half-Year Economic and Fiscal Update, Treasury indicated weaker global conditions off the back of slower growth in China, weaker trading and commodity prices and slow dairy recovery had negatively impacted on the economy.
Household consumption had also been soft, in addition to reduced impetus from the Canterbury rebuild, said Treasury secretary Gabriel Makhlouf.
A $414 million surplus in 2015 was forecast to dip back into a $401m deficit for next year, before tracking up to a $4.9b surplus by 2020.
The $401 deficit is just a forecast, and as with 2014/15, it may end up as a surplus. Time will tell.
What is clear is that it will be years until there are significantly large surpluses. This means tight fiscal restraint has to continue. There is no room for a huge spend up.
English said the operating allowance for Budget 2016 remained to plan, with $1b extra spending at next year’s Budget followed by $2.5b in 2017 and $1.5b in 2018 and 2019. However, he has left room for the Government’s spending plan to be brought forward.
Labour were increasing spending by $3 to $4 billion a year, and once the economy hit recession in 2008 (before the GFC) we were left with a level of spending we couldn’t pay for. It has taken six years to get back to surplus and still finely balanced.
With lower inflation (good for consumers) it means that the Government can’t rely on fiscal drag to push people into higher tax brackets and quietly increase the tax take. So again you need some fiscal restraint.
Sadly though there is little sign of it, with $9 billion of new annual spending demanded by various politicians and lobby grorups since the Budget.