English keeping grip on reins

Bill English. Photo / Mark Mitchell

Next month's Budget will show the Government remains on track to return to surplus in 2014/15, but Finance Minister Bill English signalled yesterday that that would not herald a loosening of the fiscal reins.

Instead the focus would shift to reducing the Crown's net debt to 20 per cent of gross domestic product by 2020, he said.

In December's half-year update net debt was forecast to be over 29 per cent of GDP for the next four years.

"We will need to maintain firm expenditure control beyond our return to surplus, so we can run big enough surpluses to have choices about paying down debt, topping up the New Zealand Super Fund and investing more in priority public services."

The New Zealand Superannuation Fund assets are not included in the calculation of the net debt objective.

Reducing the net debt-to-GDP ratio from 29 to 20 per cent within three years is a challenging target, but the Herald understands English was not signalling any change of policy about the resumption of contributions to the fund, which as of December were set to resume in the 2018/19 year. Asked when the Government could cut taxes, he said: "It could be a wee while yet."

The December update shaved $5 billion off forecast tax revenues over the three years to 2014/15, reflecting a weaker economic outlook. That was almost entirely offset buy a string of deficit-shrinking changes to the forecasts, including higher road-user charges and ACC levies, $1 billion less in earthquake expenses, plus less spending on benefits and interest costs. It left the Government with a small - $66 million - surplus forecast for 2014/15.

By the end of February, two-thirds of the way through the fiscal year, tax revenue was running 2 per cent ahead of forecast.

But since the December update drought has struck, which will mean a lower starting point for the tax base going forward.

English's message yesterday was about the value of restoring fiscal buffers depleted by the recession and the Canterbury quakes - likely to be more than the $13 billion already committed.

"Relatively low debt helped New Zealand weather the last storm. We need to get ready for the next one."

But he also questioned the long-held view that the country is vulnerable because of low household savings rates and a resultant reliance on imported capital.

"Most economic advice on this matter amounts to an assertion that New Zealanders are consistently and systematically acting against their own best interests by not saving enough," he said.

"I think it is unlikely they are being systematically stupid."

Work by the Reserve Bank and Treasury suggested household saving may have been under-reported in official data in a number of respects, including unincorporated businesses.

If people saved too little it could be in part because of "all the free stuff" in the form of public services the Government provided. "They see themselves as paying an insurance premium when they pay their taxes."

But even if household savings are higher than has been depicted, it seems English does not see that as a reason to go easy on Government saving.