$1 billion more to be spent in 2004 budget by Government

11.45am - By SIMON LOUISSON


Finance Minister Michael Cullen said he would announce $1 billion of new spending in the 2004 budget thanks to higher budget and growth forecasts released today.

The December Economic and Fiscal Update showing a sharp increase in forecast budget surpluses and growth would allow the Government "to spend a little more in our next three budgets", Dr Cullen said.

The Government will use the $1 billion to deliver an assistance package to low and middle income earners as the centrepiece of next year's budget, he said.

The 2004 budget will commit $1 billion in new operating spending above the $1.1 billion already signalled or incorporated into baselines in the first year.

The total in subsequent years will rise to $3.3 billion. Much of that will be through a new programme titled Future Directions, which will begin next year.

Treasury's forecast for the operating surplus for the 2003/04 year has been revised up to $6.09 billion from the May budget forecast of $3.76 billion.

The forecast surplus for 2004/05 has been lifted to $6.3 billion from $4.5 billion and for the following year it is forecast to be $5.8 billion instead of $5.3 billion.

Using the so-call Oberac numbers (the operating balance excluding revaluations and account policy changes which Dr Cullen believes is a fairer measure), the surplus for 2003/4 has been lifted to $5.21 billion from $3.76 billion. For 2004/5 the forecast has been lifted to $6.34 billion from $4.47 billion.

The stronger budget numbers are a result of the more robust economy with economic threats such as the Sars virus having diminished. A booming domestic economy has seen tax flows soar.

Treasury is now forecasting growth in the year to March 2004 at 2.8 per cent against 2.2 per cent forecast in the budget.

Growth in the following year is predicted to remain at 2.8 per cent and is then seen lifting to 3.4 per cent in the next two years. The whole growth profile has been lifted from the budget forecasts.

"The better fiscal outlook with a structural increase in tax revenue, will allow us to spend a little more in our next three budgets than we flagged in Budget 2003 while still more than delivering on our fiscal objectives," Dr Cullen said.

He said net debt would be well under the Government's 30 per cent of GDP target and "raises the issue of whether the target should be lowered".

Dr Cullen said that despite the increased "fiscal headroom" he would continue a cautious approach so there would be a buffer against future economic shocks and because the economy was running close to capacity.

"Too great a spending stimulus could place undue pressure on monetary policy," he said.

While being cautious, Dr Cullen said the mid-point of the new forecasts had given the Government more confidence on spending.

"We have further options going forward."

He said if he put his foot too far down on the fiscal accelerator, then that was likely to cause further stress to the export sector and that would "turn around and bite us on the bum".

- NZPA


Full details of DEFU