New Zealand Projects Budget Surplus by 2024, Plans More Spending

(Bloomberg) -- New Zealand’s government expects to achieve a budget surplus three years earlier than previously projected as the economy rebounds from the Covid-19 pandemic.

Treasury Department forecasts show a NZ$2.1 billion surplus in the year ending June 2024, Finance Minister Grant Robertson said Wednesday in Wellington when presenting the half-year fiscal and economic update. In May’s budget, the balance was projected to stay in deficit until 2027. 

The projected surplus is a dividend of Robertson’s strategy of immediate, aggressive fiscal support when the pandemic hit in early 2020. As well as allowing more rapid debt reduction, the increase in revenue will enable the government to raise spending in health and other areas leading into the 2023 election.

“The strong economic position gives us options,” Robertson said. “There are major challenges and opportunities that need to be met. Now is the time to tackle major long-term issues.”

Robertson is lifting the operating allowance in the 2022 budget to NZ$6 billion to increase health funding and to tackle greenhouse gas emissions.

The government today also announced the creation of a NZ$4.5 billion Climate Emergency Response Fund, based on projected proceeds from the emissions trading scheme over the next four years.

Delta Outbreak

The near-term fiscal and economic outlook has been dented by an outbreak of the delta variant in mid-August, centered on Auckland. The nation’s largest city, which comprises a third of the economy, was in lockdown for 15 weeks with restrictions beginning to ease only on Dec 3.  

Gross domestic product likely fell 4.1% in the third quarter, according to a Bloomberg survey. That data is due tomorrow.

While growth is expected to recover quickly, Treasury now forecasts annual average growth of 0.8% in the year through June 2022, down from 3.2% projected in the May budget.

Still, growth will recover to 4.9% in 2023, it said.

The wage subsidies and business support packages implemented to support Auckland will see the budget deficit widen to NZ$20.8 billion, or 5.7% of GDP, next year.

That compared to a Budget projection of NZ$18.4 billion or 5.3% of GDP.

A combination of stronger economic growth and high inflation -- Treasury sees prices rising 5.1% in the year to June 2022 -- will underpin revenue and help the deficit narrow to just NZ$831 million in 2023.

Net debt is now seen peaking at 40.1% of GDP in 2023 compared with the previous forecast of 48%. This includes the Reserve Bank’s various alternative monetary policy measures, which Treasury said could be looked through as they should reverse out over time. When the RBNZ’s liabilities are excluded, net debt is forecast to peak at 35.3% of GDP in 2024.

By 2026, net debt is forecast to fall to 30.2% of GDP.

The improved outlook has allowed the government to reduce its expected borrowing. The bond program for 2021-22 has been lowered by NZ$10 billion to NZ$20 billion, while the following three years have been cut by NZ$7 billion to NZ$18 billion each.

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