17 May 2010

Crown deficit tipped to continue

4:06 pm on 17 May 2010

Economists say stronger economic activity will help the Government's coffers, but an improvement will be slow and the Crown will remain in deficit for the next few years.

Finance Minister Bill English delivers the Budget on Thursday, setting out the Government's economic direction, taxation and spending plans for the country.

Westpac expects the Treasury to predict that the New Zealand economy will grow 3% in the year to March 2011, and 4% the year after, before it eases back.

But Westpac chief economist Brendon O'Donovan predicts a weak pick-up in corporate tax revenue - meaning spending will be squeezed as the Government aims to return to surplus.

Mr O'Donovan says the economy is obviously performing better than expected. While deficits will continue, a return to surplus is expected by 2015 instead of 2017.

He expects net Government debt to reach 25% of gross domestic product by 2014, but New Zealand will still be a "paragon of virtue internationally".

The Government on Thursday is expected to also announce more details about personal tax cuts, a rise in GST, and tougher rules on property investment gains. It has emphasised the changes will be broadly revenue neutral and make most people better off.

Mr O'Donovan says the Government could meet that criteria by shaving a couple of percentage points off the two lowest personal tax rates and dropping the top rate from 38% to 33%.