Budget deficit to rise this year, return to surplus later

This year's operating budget deficit could blow out to more than $16 billion dollars, or 8 percent of gross domestic product (GDP), from the $11.1 billion forecast because of the Christchurch earthquake and other factors, Finance Minister Bill English said today.

He told the ANZ Capital Markets Conference in Wellington that as a result, net Crown debt could exceed 30 percent of GDP by June 2014, which is up from around 28 percent forecast in the December half-year update and up from around 14 percent in June 2010.

The Government wanted to return to a budget surplus in the 2015/16 financial year when it had intended to be in surplus by 2014/15.

"Meeting the Government's share of the immediate earthquake costs will require a quite substantial front loading of Crown debt in the next year or two," Mr English said.

He said it was important that Crown debt returned to pre-earthquake levels "so we can absorb future economic shocks when they come along -- as they surely will".

He also moved to hit down suggestions that the rebuilding of Christchurch will stop infrastructure projects in other cities.

"Major projects the Government has already committed to will not be deferred -- they have proved their economic worth and can't simply be switched on and off. Which projects we undertake ultimately depends on their costs and benefits. These will not have changed much due to the quake," he said.

The cost of the earthquake would essentially be borne by the Government's balance sheet, rather than by cutting operating spending or increasing taxes.

"In practice, that will mean both taking on more debt and redirecting some projected capital spending towards Christchurch."

Mr English said the economy had the capacity to absorb the impact of the quake.

"The Reserve Bank last week forecast GDP growth to peak at over 5 percent in 2012 and unemployment to fall below 5 percent, but 90-day interest rates rising to only 4.6 percent. That forecast combination of high growth and moderate inflation would be good for our export industries and should contribute to a material rise in New Zealanders' living standards," Mr English said.

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Comments and questions

John Key was reassuring New Zealanders a week after the big Quake that there was 7 billion dollars put aside from a levy on Insurance premiums.
And that there was plenty of money.
We all know this was a lie and now Bill English has confirmed it.

That is not to say that Labour is not guilty because they are, they spent up the levy money that Key was talking about over the last 9 years and if they put it aside we wouldn't be having this conversation.

When will all this spending stop? Is New Zealand heading down the same track as USA and going to have a sovereign debit crisis and have to monetize the debit?

mongreldog.co.nz | Thursday, March 17, 2011 - 10:19pm

What do you expect? Stop rebuilding Chch? Or defer major infrastructure projects elsewhere in the country?

Even with the new borrowings, or dept to GDP is still only around the 8% mark isn't it? Far smaller than say Japan's 200% - and without the fall out issues of major disasters!

Anony mouse | Friday, March 18, 2011 - 6:38am

mongreldog
you have got it slight wrong. The EQC does indeed have reserves built and these will be used towards covering residential properties affected by the earthquake. However there will be a significant rebild of key infrastructure eg roads, schools etc that needs to be covered by local or central government. The government was already in a budget deficit and the earthquake has added to this and prolonged the time expected to return to a balanced budget.

Anonymous | Friday, March 25, 2011 - 9:06pm