Government and Fiscal Policy

Building momentum, or steady-as-she-goes? Budget 2013

Thursday May 16, 2013 Fiona Stokes



Modest, targeted spending increases sit behind Budget 2013.  The Minister of Finance, Hon Bill English, indicated that the Government will return to surplus by 2014/15.


Hailed as a budget that was building momentum, Budget 2013 indicates a slow and cautious approach whereby no money will be set aside for capital spending over this and the following three Budgets, and any new capital spending will come from the existing balance sheet.


The Minister of Finance made it clear that this Budget was about focusing on things that the Government can influence, and building on the initiatives of previous budgets.



The gritty details:


  • Operating surplus before gains and losses of $75 million in 2014/15.

The Minister of Finance argues this forecast surplus is due to an expected increase in tax revenue and the Government continuing to restrict any growth in expenses.  He was fairly emphatic that the return to surplus was not dependent on the Mighty River Power share sale or anything to do with the Future Investment Fund.


Proceeds from the Future Investment Fund are expected to free up between $5 and $7 billion for new investment in public assets.  Money from this fund will be used for priority public assets, with $1 billion from the fund already being earmarked for health and another $1 billion for education.


The Future Investment Fund for most of us is more commonly referred to as the Mighty River Power share offers, and now the Meridian Energy share offers. Budget announcements today indicate that the next share offer will occur in the second half of this year, depending on the half-year financial results of Meridian.  Genesis Power and Air New Zealand are earmarked as next in line.


  • Net core Crown debt is forecast to peak at 28.7% of GDP in 2014/15. 

A top priority for this Government is to reduce debt once the Government hits surplus. Net debt is currently rising by an estimated $130 million a week, and expected to peak at $70 billion in 2016/17. 


  • Contributions to the Super Fund will be delayed until net core Crown debt is no higher than 20% of GDP. 

Given our previous discussion, this means contributions are expected to resume in 2020/21.At this point, net core Crown debt is forecast to be 17.5% of GDP, which is two years later than what was projected in last year’s HYFEU.


Again, the Minister of Finance was emphatic that these contributions needed to resume, smoothing out the future impact of the rising cost of national super.


  • Another indication of how debt will be capped and then reduced is through changes to the operating allowance

This differs from the previous Budget statements, and increases from $800 million to $900 million. From 2015 operating allowances will grow by 2% per Budget.