Finance Minister Bill English will meet his targets for a return to budget surplus in 2015 and a drop in net debt by 2021 by putting a cap on new spending, taking in more tax and delaying the resumption of pension contributions.
The Budget Economic and Fiscal Update forecasts a faster track for economic growth over the next four years, excluding a drought-impacted fiscal 2014, which will help bolster core Crown tax revenue by some $14.5 billion. That provides room for some $5.1 billion of new operating spending, cuts in ACC levies starting in 2014, and an additional $2.1 billion contribution to the Christchurch rebuild.
The latest Treasury forecasts are for a wafer-thin operating surplus before gains and losses of $75 million in 2014-2015, in line with the estimate in December's Half Year Economic and Fiscal Update. Residual cash deficits over the forecast horizon are estimated at $12.7 billion, which will be met from the net proceeds of bond sales of $16.5 billion.
"Although we are making good progress, there is still much to be done," English said. "The government is firmly focused on capping, and then reducing, debt. We're quite happy with the relatively small surplus in 2015 because it is in an environment where tax and spending is under control."
The Treasury has lifted its forecast for economic growth in the year ended March 31 to 2.5 per cent from its estimate in December of 2.3 per cent.
For the 2014 March year, the estimate has been trimmed back to 2.4 per cent from 2.9 per cent, after drought dried off dairy herds earlier than usual in the North Island in the current season and prompted some farmers to cull capital stock. Growth is seen accelerating to 3 per cent in 2015.
Core tax revenue is forecast at $62.4 billion, or 27.4 per cent of gross domestic product in 2014, rising to $72.8 billion, or 28.3 per cent in 2017 as the economy grows. Growth in tax revenue is expected to strongly outpace forecast nominal GDP growth over the forecast horizon, with all tax types picked to rise, especially tax from employees, the Treasury estimates.
Net debt is forecast to be $57.9 billion, or 27.1 per cent of GDP in the year ending June 30, before reaching a peak in 2015 at 28.7 per cent and retreating to "no higher than 20 per cent of GDP" in 2021. By delaying the resumption of contributions to the New Zealand Superannuation Fund, the government avoids more than $4 billion of payments, which it may have had to borrow.
This year's budget lifts the operating allowance by $100 million to $900 million, while in Budget 2014 it is trimmed by $200 million to $1 billion. From 2015, operating allowances will grow by 2 per cent a year.
Health is the biggest beneficiary of budget largesse, with $1.6 billion allocated for new initiatives and to meet cost pressures and population growth over the next four years. Of that, $250 million goes to district health boards to address inflationary pressures and a growing customer base.
Total health spending will reach a record $14.7 billion in 2014.
The government's contribution to the Canterbury rebuild rises by $2.1 billion to $15.2 billion over the next four years, with the timing of payments one of the key risks identified in the budget forecasts. The government's contribution is forecast to peak in 2014 at $3.28 billion, before retreating to $538 million in 2017.
Spending in Canterbury is expected to be "a significant driver" of economic growth, mainly through residential and business investment.
Canterbury also gets a contribution of $900 million from the Future Investment Fund to rebuild Christchurch hospitals.
The FIF, set up to hold the proceeds of state asset sales and to fund capital spending on schools, hospitals, railways and irrigation will swell to $2.1 billion with a $1.5 billion allocation from Budget 2013. The fund benefits from the $1.7 billion raised from the sale of MightyRiverPower shares and will get a bigger infusion when half of Meridian Energy is put on the block later this year.
Some $94 million from the FIF had already been allocated to KiwiRail's turnaround.