Budget 2024: Budget surpluses get further away as government tightens belt

A weak economic outlook and slower recovery has pushed out a return to budget surpluses and forced the government to keep tight control of its spending to pay for tax cuts.

The coalition government’s first budget shows expectations of a lower tax take because of the weak economy, while expenses remain elevated, with the budget deficit peaking this year and staying higher for longer.

Finance Minister Nicola Willis said the Budget was part of the “clean up” of the economy after Labour.

“Despite worsened economic conditions, the government is putting the books in order and is on track to deliver a [budget] surplus in 2027/28.”

“We have reduced the allowance for new spending in this and future budgets.”

Treasury forecast this year’s budget to the end of June would be $11.1 billion, about $1.8b above forecast.

The deficit will peak in the coming year at $13.4b, more than double the previous forecast.

Deficits are expected to stay higher for the next two years before posting a surplus of $1.5b in 2028.

Willis said the amount of money available for new spending had been reduced over this and future years as part of its disciplined approach.

“We have taken a disciplined approach to make sure spending is targeted, effective and affordable.”

Read more on Budget 2024:

She said the discipline had resulted in savings and extra revenue to pay for close to $4b in tax cuts and assistance, which in turn would flow through to help lift economic growth.

Asked if the budget would be able to get back into surplus quicker if the tax cuts had been delayed or scrapped, Willis said: “We had a choice to break a (election) promise, we chose not to do that.”

Economic and financial forecasts were weaker than the December half-year update.

Growth was forecast to turn positive in the coming year, average about 2.9 percent a year over the next three years, with unemployment peaking at 5.2 percent in the year to June next year and then holding around 4.5 percent.

Inflation was forecast to fall back into the Reserve Bank’s 1-3 percent target band by the end of this year, and to hit and stay at the desired 2 percent midpoint over the next three years.

Willis said the tax cuts had been funded by savings on spending and new revenue and would not be inflationary.

“We’re doing what we can do to reduce the pressure on inflation… We’re doing our bit.”

The government borrowing programme over the next four years was increased by $12b from December’s forecast.

Net debt is forecast to peak at 43.5 percent of GDP in 2025 and is forecast to remain above the government’s 40 percent ceiling for the following three years.

According to the news on Radio New Zealand

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