The new Government has unveiled a Budget outlook that fits its big health, education, transport and welfare spending plans within its self-imposed restrictions to reduce debt and keep running surpluses.
But the fit is tight, leaving little room for new pay equity deals or much wage inflation catchups from nurses, teachers and police officers. The capital allowances detailed in the plan also leave little room for much new spending on expensive rail or housing infrastructure.
The new Government is forecasting surpluses will grow to $6.5 billion by 2021, which is actually slightly above the $6.4 billion forecast before the election under the previous Government. It is forecast to rise to $8.5 billion by the end of 2021/22.
Net debt is also forecast to fall under 20 percent of GDP by 2021/22. Both of those forecasts were in line with the new Government’s Budget responsibility rules to keep running surpluses over the cycle reduce net debt to 20 percent within five years of taking office.
However, the Half Yearly Economic and Fiscal Update (HYEFU) shows the new Government has little room to deal with infrastructure deficits or unexpected lumps of new spending.
The HYEFU showed the Government had just $6.6 billion of headroom for extra operating spending over the next four years, once spending already agreed in coalition deals was included.
The capital allowances are also meagre, with just $8.9 billion of headroom over the next four years after accounting for the $1b per year Provincial Growth Fund.
This tightness is the reason why Finance Minister Grant Robertson, in the lockup for the HYEFU, talked up the prospects of bringing in private capital to help with urban infrastructure.
Elsewhere, the HYEFU revealed Treasury had slightly reduced its growth forecast for the next year, but increased it in the years beyond. It also increased its interest rate track by 25 basis points by the fourth year and reduced its unemployment rate to four percent.