Weak global economy leads Government to revise surplus down

3.30pm

A weaker global economy has led the Government to revise down its operating surplus forecasts by a total of $2.9 billion over the next four years, the Government said in Budget papers released today.

But despite the slower world economy the Government still expects surpluses to rise over its forecast horizon.

As expected, Finance Minister Michael Cullen delivered a financially prudent budget with few new spending initiatives, putting a $692 million lid on net new spending in the next financial year.

The budget's two core messages were a commitment to sound fiscal management and transformation of the New Zealand economy to lift its performance relative to other wealthy countries, Cullen said.

Spending is at its lowest level as a proportion of GDP for over two decades, Budget papers show, but that didn't stop a markdown in the expected surpluses.

"Relative to the December update, the operating balance is lower by a total of $2.9 billion across the forecast horizon," Budget papers said.

The lower surpluses were due to offshore influences on New Zealand's GDP forecasts and demand-driven factors, including the impact of population ageing on benefits.

Surpluses, or the difference between expenses and revenues plus contributions from State companies, are expected to be $1.4 billion in 2001/2 (compared to a forecast $2.2 billion in the Government's December forecasts), $2.4 billion in 2002/03 (compared to $2.8 billion in December), rising to $3.1 and $3.7 billion in the following two years ($3.6 billion and $4.5 billion respectively in December).

Big-ticket items soaked up the majority of the spending increases. The most obvious areas of extra spending were in health, allocated an extra $1.4 billion over the next four years, with extra $467 million for education, and $165 million for law and order.

While the forecasts extend well beyond the next election due late 2002, Cullen's Labour Party is leading comfortably in the polls.

Labour is the majority partner in a minority coalition Government with the Alliance Party.

The budget also revealed more detail about a new venture capital fund which which in partnership with the private sector would inject money into high-tech start up businesses.

Cullen has earmarked $100 million of government money for the fund, cash taken from state-owned companies.

- REUTERS