Reducing income tax 'still a priority' - Bill English

Finance Minister Bill English confirmed it was still a priority to reduce income tax from Budget 2017 if conditions allow. Photo / Mark Mitchell

The Government has softened some of its targets for achieving surplus and reducing debt in light of a deterioration in the books that makes it previous target harder to sustain.

But Finance Minister Bill English confirmed it was still a priority to reduce income tax from Budget 2017 if conditions allow.

However it will now aim to maintain rising surpluses over the five-year forecast period rather than "this year" and it will aim to reduce debt to "about" 20 per cent of gdp by 2020 instead of specifically 20 per cent of gdp by 2020.

The reset targets were revealed yesterday in the half-yearly opening of the books and revised Treasury forecasts.

Mr English said the Government's target of reaching surplus in 2014 - 15 had been reached- "just."

"Now we need to update our fiscal targets in a way that reflects the broad economic circumstances and the fact that the budget is now broadly in balance.

"The update doesn't signal a change in direction," he said. "It is simply adapting the targets to the relevant part of the fiscal and economic cycle."

However Labour finance spokesman Grant Robertson said "now the surplus sideshow is over, it's time for National to put people first in their management of the economy."

The $176 million operating surplus that was forecast in May for the current year has turned to a $400 million forecast deficit but Mr English says it is a such small shift in what is a $70 billion budget that he is not going to change any spending decisions in order to try to bring in another surplus.

He was not disappointed that the forecasts had gone back into deficit.

"It's just another Treasury forecast, right?"

The current softening in global conditions including reduced growth in China, low dairy prices and low inflation has affected forecasts: gdp is now forecast to be $17 billion less over five years than was forecast in May, and Government revenue about $5 billion less than forecast over the same period.

Gdp growth over five years is forecast to be an average of 2.7 per cent.

The operating allowances already set for the next three Budgets - $1 billion, $2.5 billion and $1.5 billion -was confirmed but Mr English said they could be rephrased. He also announced new capital operating spending on $1 billion

Unemployment is forecast to peak at 6.5 per cent in March 2016 before falling to 4.5 in 2020. In May, the Budget forecast the rate of unemployment to be 5.1 in 2016.

The Government posted a razor-thin surplus of $414 million in the 2014 - 2015 year.

Reaching surplus by then was a target it set itself from 2011 as it managed the economy out of the global financial crisis and Canterbury earthquakes but it was touch and go as to whether it would make it.

It also set itself the target to continue the surplus into the current year and beyond.

Mr Robertson pointed out that Treasury had slashed the forecast additional jobs in the current year from 42,000 to 7000 - although it has revised upwards the forecast of new jobs over the next four years from 133,000 to 154,000.

Mr Robertson said the cut in jobs growth for the current year was "a result of a Government without a plan other than to drift along and hope for the best."

"New Zealanders deserve better than that."