19 Dec 2012

Long term debt target tougher to reach

3:25 pm on 19 December 2012

The Government is facing a tougher time getting debt down as quickly as it had planned.

In its Half Year Fiscal and Economic Update on Tuesday the Treasury cut forecasts for average annual growth up till 2017 to 2.5% from the 3% forecast in May's Budget.

The Budget had predicted surpluses large enough from 2014/15 to bring down the Government's net debt to 20% of GDP by 2020.

Finance Minister Bill English says the lower growth forecasts mean the surpluses won't be large enough for that to happen, but the Government hasn't given up on the target.

"We need to work towards achieving that goal of getting us back to the position where we can handle the next recession, or the next earthquake."

Westpac Bank says that means the Government could keep a tighter rein on spending for longer but the Council of Trade Unions says it should boost spending to stimulate the economy and get bigger surpluses.

Meanwhile, credit rating agency Moody's says the lower growth and higher debt forecasts have not been enough to dent the country's AAA rating.

Government accused of obsession over surplus

Despite the new growth forecasts the Government is sticking to its target of returning its books to surplus in 2014/15.

The petrol tax will be increased by nine cents a litre over the next three years, and recommendations by the ACC board to reduce levies for employees, employers and the self-employed will be ignored.

The Government says that will add more than $400 million to the coffers and help it get back into surplus.

The Labour Party says the Government has put too much on its Christmas wish list and is now having to scramble to find the money.

The Greens say these decisions are motivated by the desire to reach surplus as promised rather than protecting cash-strapped New Zealand families.