26 May 2016

Govt forecasts stronger economic growth

2:52 pm on 26 May 2016

The government is forecasting stronger economic growth and surpluses in this year's budget.

Money

Photo: 123RF

Finance Minister Bill English said the economy was forecast to grow at an average 2.8 percent over the next five years, driven by robust population growth, record numbers of tourists and low interest rates.

"The outlook for the economy is positive. Businesses are investing, job growth is solid and wages are rising faster than inflation."

The Treasury is forecasting growth will rise from 2.6 percent in the June 2016 year to 3.2 percent in 2018 year, before easing back.

But it warns there are threats, including a sharp slowdown in China, persistently low global inflation and rising house prices, particularly in Auckland.

An additional 170,000 people are expected to be in work by 2020, and unemployment is set to fall gradually to 4.6 percent by 2020.

Mr English said a stronger economy was helping boost the government's coffers, with rising surpluses predicted over the next five years.

Excluding investment gains and losses, the Treasury forecasts a $700 million surplus in each of the June 2016 and 2017 years, before rising to $2.5 billion, $5bn and $6.7bn in the following three years.

Some new spending has been brought forward from 2017 to recognise the pressures created from higher population, lifting this year's allowance to $1.6bn.

A further $400m from the 2017 new spending will be used to repay debt.

Capital spending will be reduced by $1.2bn over the next five years to also help repay debt faster, and meet the government's 2020 net debt target of 20 percent of GDP.

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