Bill English's Budget preview: Expect a higher deficit

Finance Minister Bill English. Photo / Jason Oxenham

Finance Minister Bill English has confirmed that this month's Budget will see the $372 million surplus forecast a year ago turn into a deficit slightly higher than $570 million deficit forecast in December.

Until now he has been saying that achieving a surplus under current conditions would be "challenging".

Now he says the surplus will be a year later, 2015 - 16, and that the Budget will forecast a surplus slightly lower than the $565 forecast in the December half-yearly update.

In a pre-Budget speech in Wellington, Mr English also revealed that revenue forecasts over the next four years will be $4.5 billion lower in this month's Budget than they were in last year's Budget.

And he says Treasury's forecast of growth in GDP over four years will be $15 billion lower than it was in last year's Budget.

While Mr English has confirmed the books will forecast a deficit, it is still possible, though not looking likely, the Government could achieve a surplus for the current financial year ending in June when the income and expenditure is accounted for in October.

The deficit of $570 million forecast in December is just 0.2 per cent of GDP.

It is unusual for Mr English to give such detail before Budget day - this will be his seventh - but it can be seen as an attempt to get the bad news out of the way early.
He said the Government remained committed to further cuts in income tax rates or thresholds when fiscal and economic conditions permitted.

Mr English said the factors that have reduced the Government's revenue and therefor the surplus track were the same factors that were helping households and business to grow - low inflation and low interest rates.

A small deficit, should it eventuate this year, was not a risk to the economy and the downturn in revenue was due to positive economic conditions - strong growth but low inflation and low interest rates.

Mr English said that having a surplus target was important.

"It has imposed a discipline on us and on Government agencies to work hard on achieving value for money and providing new spending only where we can get better results."

He said the Government would not be cutting expenditure in a "knee-jerk response to lower expenditure."

That would undermine the excellent work by public servants in recent years to improve public services and it would undermine the confidence of New Zealanders in the quality and effectiveness of public services.

"We maintained welfare support, we've maintain and improved health and education.
"We wont change that approach just to turn a small forecast deficit into a small forecast surplus. Other things matter more."

Mr English also used his speech to reinforce the Government's "social investment" approach to social spending - about which he is expected to make more announcements in the Budget.

The Government was using better information about the people who needed social support to drive spending decisions in the public sector.

"We have identified some factors in the life of a child that predict how depend they are likely to be on government services as a teenager and adult."

For example a child aged under five who was known to Child Youth and Family Service, had at least one person in their household on a benefit and had one parent who had had contact with Corrections was, by the age of 21, seven times more likely to have been in prison and by the age of 35, five time more likely to have been on a benefit."

He said that in any given month 70 per cent of the people who signed up for an unemployment benefit had been on a benefit before.

"So this tells us the job isn't done just because someone has moved into work - we need to do more to help them stay independent."

"We are focusing on using the data and our front-line knowledge about the people we serve to intervene earlier to help people lead more fulfilling lives."

"We call this social investment. We are willing to pay a bit more upfront to secure long-term results for the most vulnerable New Zealanders."