Economic and Fiscal Outlook
We want an economy, an environment and a society which are sustainable, productive and inclusive. These will be the strong foundations for our future.
We must make our economy more sustainable for future generations. This means caring for our environment as a core value, not as an after-thought. It means transitioning in a just and deliberate manner towards a low carbon economy.
To transform the economy we have to be more productive. We have to work smarter, build our skills and resilience, explore new innovations and adapt to change. We cannot continue to rely on merely increasing our population, exporting raw commodities and an overheated housing market to drive economic growth.
Our economy must be more inclusive, too. This means a society where everyone has an equal chance to fulfil their potential, to contribute, and to live meaningful, connected, healthy and fulfilling lives.
Ultimately we want New Zealand to be a place where everyone has a fair go, and where we show kindness and understanding to one another.
It is clear to me that no one in New Zealand wants a society where people have to live in a car or on the street, where children go to school with no shoes or no lunch, where our transport systems are clogged, our hospitals unhealthy, our prisons overflowing, and our education system overwhelmed.
Yet, despite our solid economic growth, that is the place New Zealand finds itself in today. It is not the New Zealand way and it is not acceptable to this Government.
Our plan will grow and share our prosperity, so that our whole society is lifted up, and everyone has access to good quality healthcare, education, housing, and other social services.
That is why, in this Budget, the Government is prioritising those investments that will rebuild the critical social and physical infrastructure in New Zealand, and address the long-term challenges we face.
At the same time, we are committed to living within our means, and having a buffer to deal with the risks and shocks that can come upon a small country sitting on the faultlines of the Pacific.
Mr Speaker, the outlook for the economy is positive.
The Treasury forecasts economic growth of about 3 percent per annum on average over the next four years. Wages are forecast to rise by an average of 3.1 percent over the forecast period, with real terms average wage increases in each year.
Unemployment is expected to fall to 4.1 percent in late 2019, in line with the Government’s target of reducing unemployment to 4 percent by the end of this term.
Stronger-than-expected revenue is being generated from economic and employment growth. This gives us breathing space to properly consider any changes needed to our tax system.
As promised, we have already established a Tax Working Group to recommend how to create a better balance in our tax system. Getting these signals right is a vital step towards improving the long-term sustainability and productivity of the economy.
Budget 2018 begins steps to restore tax fairness. More funding is being given to Inland Revenue to crack down on tax dodgers. This is expected to recover more than $183 million over the next four years.
Other recently announced initiatives will reduce distortion in the tax system. These include ring-fencing rental losses and closing the loophole on offshore companies avoiding GST on low-value goods sold locally.
We must manage the country’s finances responsibly for the sake of future generations. This Budget delivers an operating surplus for 2017/18 of $3.1 billion rising in 2018/19 to $3.7 billion, with surpluses reaching an estimated $7.3 billion by 2022.
These surpluses allow us to reduce debt. The Budget Responsibility Rules commit us to reducing the level of net core Crown debt to 20 percent of GDP within five years of taking office.
The Treasury forecasts that net core Crown debt will reduce to 19.1 percent of GDP by 2021/22, giving us a good buffer for issues that we are yet to see the full consequences of, such as the Mycoplasma bovis cattle disease.
We are also delivering on our Budget Responsibility Rules by keeping government expenditure below 30 percent of GDP. Core Crown expenses are expected to track at about 28 percent of GDP each year through to 2022.
Keeping to these rules allows us to make significant and sustained investments in our future.
The new spending announced today is enabled by more tax revenue than previously forecast, some previously announced tax changes, reprioritising some spending, and taking a more responsible approach to debt reduction. We are slowing down the debt repayment track of the previous government by two years.
Responsible fiscal management and a strong economy give us the space to increase the new operating spending allowance from the Half Year Economic and Fiscal Update to $2.8 billion for this year, and the new capital investment allowance to $3.8 billion. The allowances for the remaining years of the forecast period have also been increased to reflect the cost pressures that will need to be met in coming years.
All together this means that over the next four years we have about $24 billion more than the previous government had planned to invest in infrastructure and social services, so we can repair the deficits that are undermining our economy and communities.
This will lay the foundations for our economic and social transformation.