PM: Economy's revival means safer jobs

Prime Minister John Key. Photo / Mark Mitchell

Prime Minister John Key says there is "light at the end of the tunnel" and New Zealanders can feel more confident they will keep their jobs, after half-yearly accounts painted a better picture than the Budget.

Finance Minister Bill English said New Zealand had gone through the worst, and was on the road to recovery.

But he downplayed the effect of improved forecasts on Government spending, saying restraint was still required because debt was still rising.

He even signalled the prospect of setting long term spending caps in next year's Budget - as done in Nordic countries and the Netherlands, and an Act policy.

New Zealand is now forecast to have its next budget surplus - of $1 million - in 2016, instead of 2018, as projected in the Budget.

Heavy borrowing will continue, but at $10 million less a week than the $250 million a week being borrowed on average to fund the deficit.

Before leaving last night for the Copenhagen climate talks, Mr Key said the May Budget figures had been prepared in April, when the Treasury had been "worried that the wheels were going to fall off the New Zealand economy and the global economy".

But the world had come through the recession a little better than expected, "and New Zealand a lot better".

"My message to New Zealanders is that I think they can feel a bit more confident as they go into Christmas that their jobs will be retained and that they will have a stronger economy when they come back in 2010."

The brighter outlook is based on the fact that big trading partners, Australia and China in particular, have withstood the recession.

Mr English said the revised jobs figures were the best news in the half-year economic and fiscal update.

While employment would continue to fall, the size of the fall would be less than forecast, the report said.

The Budget forecast that the economy would have 124,000 fewer jobs in September next year than it had two years before.

The Treasury now forecasts that there will be be 60,000 fewer jobs.

Mr English said one of the reasons that had happened was that businesses had tried hard to hold on to employees, and and in many cases workers had taken cuts in hours of work and pay rates to stave off job losses.

"The flip side of that is that as unemployment peaks, it is unlikely to come off rapidly because a big chunk of the workforce will simply move to restore their hours of work and restore their levels of pay before new jobs are created," Mr English said.

The Government's priority was going to be getting conditions that encouraged businesses to employ extra people.

Job growth was unlikely to occur in Government departments, as most agencies would receive no new money for several years.

Mr English said the rising cost of financing the growing debt placed limits on what the Government could do.

"While we are running deficits we don't have choices."

Finance costs are projected to increase from $2.4 billion in the past financial year to $4.6 billion by 2013-14 - "more than the combined spending on police and defence".

"We would be having a significantly different Budget it 2010 if we didn't have to find $600 million to service the rapid growth in debt."

Mr English acknowledged that the $50 billion "hole" in the economy he had warned about before the Budget was now a $23 billion hole.

In April, he said the New Zealand economy would permanently lose $50 billion in output, and the tax revenue associated with it, over the next three years.

Now it was $23 billion less.

Labour finance spokesman David Cunliffe said the fact that Mr English was trying to downplay the recovery was a worrying sign.

ON THE UPSIDE

64,000 fewer job losses than previously forecast.

8 years of deficits instead of 10.

$240m of borrowing a week instead of $250 million.

0.4 per cent shrinkage in GDP in year to March, instead of 1.7 per cent, and higher growth in the following two years.

$57.5b of net debt (26.9 per cent of GDP) by 2013 instead of $62.6 billion (30.9 per cent of GDP).

7 per cent unemployment peak early next year, rather than 8 per cent later next year.