19 May 2011

Return to surplus a year ahead of schedule

10:11 pm on 19 May 2011

The Budget has delivered a return to surplus in the 2014/15 fiscal year - a year earlier than previously forecast.

The Government says net debt will peak at 29% of gross domestic product (GDP).

The Government says a peak of 34% would have eventuated if current spending was maintained.

Savings of $5.2 billion over five years are behind the quicker return to surplus.

Of this, $4 billion will be diverted into new spending on health, education and justice over the next five years.

Another $1.2 billion of net savings will be used to reduce the deficit and reduce the need for extra borrowing.

Treasury forecasts are for the economy to grow 1.8% in the year to next March, rising to 4% the following year and 3% the year after.

That compares to Treasury's December forecasts of 3.4%, 2.9%, and 2.7% growth.

Growth will be underpinned by still-high export prices and the rebuilding of Christchurch - which will add 1.5% to economic growth over the next two years.

While the Treasury sees high export prices continuing, it does make allowance for some moderation in those prices.

The Budget predicts a 10.4% increase in the country's terms of trade in the current year.

But it forecasts a 1.7% decline in the following year, before a gradual pickup in growth again in subsequent years.

The Budget forecasts unemployment to fall from 6.6% at present to 4.8% next year, eventually falling to 4.6% in 2015.

The Government says Treasury forecasts are for 170,000 new jobs to be created over the next four years.