English vows to bridge billion dollar gap

Finance Minister Bill English has confirmed that next month's Budget will include a proposal to limit spending increases to population growth and inflation. File photo / NZPA

The New Zealand government is sticking by its goal to be back in surplus in the 2014/15 financial year, even though the outlook has deteriorated by about $1 billion dollars compared to recent forecasts.

Finance Minister Bill English told a business audience in Wellington that slower global growth, dwindling revenues from state-owned enterprises and rising finance and earthquake costs have eroded the government's books.

"Returning to surplus by 2014/15 is a big challenge,'' English told the Wellington Employers' Chamber of Commerce. "It will require tight control over spending for the foreseeable future.''

Early budget estimates are forecasting an operating deficit of $640 million in the 2014/15 financial year, down from a surplus of $370 million projected in the budget policy statement earlier this year. In last year's pre-election economic and fiscal update, Treasury officials were picking an operating surplus of some $1.6 billion in the 2014 financial year.

Earlier this month, Prime Minister John Key flagged a zero budget in May, with extra spending allocations on health and education covered by cuts in expenditure elsewhere.

English today committed to the zero budget this year, and said there will be ``little new net government spending out to 2015/16.''

The budget will "target spending to ensure we invest in priority areas like health, education, science and innovation and improving incentives around work and welfare,'' English said.

As a means to clamp down on government spending, English said the government will introduce a spending cap as part of its supply and confidence agreement with the Act Party.

The proposed legislation will mean governments will have to restrict spending increases to population growth and inflation. Spending on natural disasters, finance costs, unemployment benefits and asset impairments would be excluded.

If an administration breaches the cap, it would then need to explain why and outline how it will get back within the cap in the future, English said.

"The government will consult other political parties on the proposed changes, which we will include in a bill to be introduced around the middle of this year,'' he said.

Labour's finance spokesman David Parker said Mr English's speech was recognition the Government had failed to deliver on its economic growth promises.

"A zero budget is what you get when you fail. We all know what happened in the aftermath of the last `zero budget' - there were two credit downgrades and a greater than anticipated increase in debt,'' Mr Parker said in a statement.

"Bill English's solution to his Government's failure to rebalance the economy away from speculation and into export-led growth is to cross his fingers and hope that the 'austerity fairy' will provide.

"Just five months after the election another $1 billion has disappeared from the Government's books because the economy isn't growing. It's no surprise to me that so many families are struggling. One leads to the other.

Mr Parker said that in terms of the Government's operating deficit, up to $100 million per annum would be saved if it had cancelled its asset sales plans, which made the deficit worse.

"Asset sales, farm sales and deals to increase the number of pokie machines are no substitute for a decent plan to grow the economy.''