13 Dec 2018

Solid growth underpins govt spending plans

3:40 pm on 13 December 2018

A solid economy is expected to underpin the government's spending plans.

Finance Minister, Grant Robertson. Half Year Economic Financial Update.

Photo: RNZ / Rebekah Parsons-King

The economy is expected to grow at close to 3 percent over the next two years, supported by low interest rates, increased government spending and a stronger global economy.

Budget surpluses are lower than forecast in the May budget as spending put off last year is accounted for and new policies are put into place.

The surplus for the year ended next June is now forecast at $1.7b then rising to $7.6b in 2022.

Finance Minister Grant Robertson said the forecasts showed an economy performing well, and a government sticking to its budget responsibility rules.

"These are still very solid results.

"We're running surpluses, controlling expenses, and keeping on top of debt," he said.

Unemployment is expected to hold around 4 percent, and wage growth to pick up, due in part to improved productivity, while interest rates are expected to stay low for longer, and businesses are expected to keep investing and hiring.

The lower growth forecasts from 2021 reflect lower immigration and population growth.

Half Year Economic Financial Update.

Photo: RNZ / Rebekah Parsons-King

Inflation is projected to gradually rise but remain in line with the Reserve Bank's inflation target of 2 percent.

It has forecast net debt to fall to 19.0 percent of gross domestic product by 2022, which has been the government's long standing target.

Mr Robertson said the government's fiscal performance and solid economic outlook would allow it to focus on its wellbeing policy initiatives, which assess policies in other than economic and fiscal numbers.

Operational spending for new policies will be kept at $2.4bn over the next three years, while capital spending is forecast at $13.1 bn for the next three years.

Global risks

The forecasts included forecasts which covered the prospect of better or worse circumstances hitting the economy.

The downside scenario is based on global weakness hitting New Zealand exports and hurting growth, investment plans, and the tax take.

The upside scenario suggests strong export prices, stronger investment, higher inflation and improved government finances.

Mr Robertson said he was keeping a wary eye on the international outlook especially the United States-China trade dispute, global growth, and any instability in Europe, including Brexit.

"All these factors weigh on our minds. New Zealand needs to be prepared and we are. We are resilient."

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