The fiscal turn-around

The accounts released by Treasury just before the 2008 election showed a decade of deficits projected. A few weeks later the books had deteriorated further that the fiscal settings inherited from Labour were projecting a permanent structural deficit – which means debt increasing until you end up like Greece.

In just five years there has been a remarkable turn-around. Labour and Greens have fought and opposed every piece of spending restraint done by the Government. They fought for every single public sector job there was. They decried the reductions in the subsidies for KiwiSaver. I hate to think what the books would be looking like now if the Government had not changed.

Bill English has announced the final accounts for 2012/13:

Higher tax revenue and lower than forecast core Crown expenses helped to more than halve the Government’s operating deficit before gains and losses to $4.4 billion in the year to 30 June 2013, compared with a $9.2 billion deficit the previous year.

Halving the deficit is well done.

The result was considerably better than the $7.9 billion deficit forecast by Treasury at the start of the financial year in Budget 2012, and confirms the Government’s prudent approach to fiscal management is paying dividends, Finance Minister Bill English says.

Coming in $3.5 billion under the budget is even better.

“The National-led Government has consistently examined how public services are delivered,” he says. “This has allowed us to reduce costs while improving the services New Zealanders receive, as well as helping the people of Canterbury following the earthquakes.

“We are well on track to return to Budget surplus in 2014/15. It’s important we get there because, until we do, we will continue to increase our debt. Despite the considerable progress we are making, there is no room for complacency.

“In the past financial year, we were still borrowing a net $110 million a week, compared to almost $260 million a week in 2010/11. Once we reach surplus, we will then have choices about reducing our debt and investing more in priority public services and important infrastructure.

The Government have had to fund billions of dollars for the Christchurch rebuild. I recall Greens (and I think Labour) demanding New Zealanders be hit with a special extra tax to fund the rebuild. Their solution was to tax more rather than restrain spending elsewhere and prioritise.

The Government remains on track to reduce expenses to 30 per cent of GDP by 2016/17, down from around 35 per cent of GDP in 2010/11, Mr English says.

30% is still too high when you consider the size of the local government sector also. But it is a positive trend.