In Bill English's fifth Budget slightly more cheerful economic forecasts have cleared the way for cuts to ACC levies from next year, leaving the fiscal bottom line almost unchanged from December's mid-year update.
Economic growth over the next four years will average 2.5 per cent a year, the Treasury says, unchanged from the outlook six months ago.
Growth will be weaker this year (2.4 per cent instead of 2.9 per cent ), reflecting the summer drought, but followed by a catch-up next year (3 per cent instead of 2.5 per cent).
The outlook for domestic demand, in particular private consumption, has been revised up, but net exports will struggle, reflecting a significantly higher track for the exchange rate.
The biggest single change in the forecast assumptions since December is a $10 billion increase in the expected costs of rebuilding Christchurch to $40 billion, of which the Crown's share will be $15 billion.
That increased stimulus to demand offsets the negative effects of the drought, a stubbornly higher dollar and fiscal policy which subtract from growth over the next four years.
Six months ago the Government cancelled foreshadowed reductions in ACC levies; it now believes they are affordable.
Though levies for 2014/15 have yet to be finalised they are tipped to fall by about $300 million, and by $1 billion the next year, boosting household and business incomes by the same amount.
The operating balance excluding gains and losses is a deficit of $6.3 billion, $1 billion less than previously forecast, in the year to next month but unchanged over the next two years at a $2 billion deficit in the coming year and just over the line into surplus on schedule in 2014/15.
"The surplus remains small at $75 million," Westpac chief economist Dominick Stephens said.
"But in a way, the Government has introduced spending initiatives so that it continues to sail close to the wind, implying a degree of confidence around this target. It could have simply let the surplus widen. Instead it actively chose not to."
Stephens considers the growth forecasts conservative, especially on private consumption.
"We expect the accelerating housing market and associated increase in confidence to spill over into higher spending by households," he said.
"Households are getting their Dutch courage back at a rapid rate as house price rises accelerate to around 10 per cent growth per annum. The borrow and spend mentality will follow.
"In our view, more household spending will result in higher inflation and lead to interest rate rises sooner than both the Treasury and the Reserve Bank are factoring in."
English and Reserve Bank governor Graeme Wheeler have signed a memorandum of understanding empowering the bank to use macro-prudential tools to dampen excessive growth in credit and asset prices.
"Over the next two months, we will be consulting further with the banks to establish the implementation details," Wheeler said.
The current account deficit is forecast to widen from 5 per cent of gross domestic product now to 6.5 per cent in four years.
English said were it not for costs linked with the Canterbury rebuild it would stay below 5 per cent of GDP over the next few years. "The ongoing challenge of the current account deficit shows why we must get government debt down and reduce business costs, so as to offset what we can't influence, like the exchange rate."
Contributions pushed back
The Government has pushed back by two years when it expects to resume contributions to the NZ Superannuation Fund, set up by former Finance Minster Sir Michael Cullen to partially defray the costs of babyboomers' superannuation.
It said yesterday it would not resume payments into the fund, which were suspended when the global financial crisis hit, until net Government debt fell below 20 per cent of gross domestic product, something it expects to happen in the 2020/21 year.
It expects to be running cash surpluses from 2017/18 onwards.
"The choice at that point is whether to use these cash surpluses to reduce debt to more prudent levels or to put the money into world sharemarkets," Finance Minister Bill English said.
The first option gives the Government more flexibility. In the event of another major negative shock it could not sell assets in the Cullen Fund, but it could increase Government debt.
The 20 per cent of GDP threshold had been chosen simply because it looked achievable in a reasonable time frame, he said.
The delay in resuming contributions to the fund would not in any way affect entitlement to superannuation, he said.