Economic rebound set to create rising surpluses

A robust economic rebound after the terrorist attacks on the United States is predicted to create rising surpluses for the Government, Treasury said today.

Finance Minister Michael Cullen said his budget showed "The economy has shrugged off the effects of September 11 and is looking forward to a stable growth rate of around 3 per cent in each of the next four years."

The lift in the post-September gloom also raised Treasury's hopes about the size of the Government's surpluses.

The coming financial year will see the Government run a $2.28 billion surplus (up from $1.8 billion forecast in December).

The last five months saw a large turnaround in the Government's books for this year. The Government will bring in $2.3 billion more this year than it spent, rising to $2.6 billion after revaluations.

In December Treasury feared the surplus would be less than $1 billion and as little as two months ago was picking a surplus of less than $1.9 billion.

Dr Cullen said the pattern ahead was for "solid and rising surpluses" - $3 billion in 2003/2004, $3.9 billion in 2004/2005 and $4.2 billion in 2005/2006.

"On most of the other key economic indicators, the outlook is equally benign: inflation within the target range, unemployment continuing at its curent low level, wages increasing by a little over 3.5 per cent a year on average, and the current account deficit -- although rising remaining below 5 per cent of GDP.

"The fiscal position moving forward is extremely positive with net worth projected to double over the foreacst period," Dr Cullen said.

The upbeat finance minister was also able to reduce his borrowing programme by a third and as a result gross debt will fall to meet the Government's target of 30 per cent of GDP.

Gross debt will move from $36.3 billion in 2001/2002 (30.2 per cent of GDP) to $35.8 billion in 2002/2003 (28.6 per cent). While gross debt is predicted to start rising again after this and will reach $40.7 billion in total by 2005/2006 it will still only be 28.4 per cent of GDP.

Treasury said in its economic outlook it had lifted its predictions due to the "surprising strength of the labour market" and other economic conditions lifting household expenditure.

A "substantial turnaround" in net migration was also boosting the economy.

By June 2002 Treasury believed net migration would reach 30,000 (20,000 more than it believed in December) but was still unsure about the exact effect on the economy or inflation.

Economic growth would remain "robust", employment growth and household spending was "expected to slow" and export prices would continue to fall.

Inflation was predicted to stay around 3 per cent, but Treasury believed the Reserve Bank would not need to push the 90 day bill rate much beyond 6 per cent.

For the Government, the state of the economy meant revenue was expected to rise from $41 billion this year to $45 billion by the end of 2004, rising from 34.2 per cent of GDP to 34.4 per cent. Government spending would rise over the same period from $39.1 billion to $42.2 billion or 32.5 per cent of GDP to 32.7 per cent.

- NZPA

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