Wednesday, New Zealand's Finance Minister Bill English said the personal income tax cuts planned for 2010 and 2011 will go ahead only if it is affordable. The Government believes lower taxes will benefit the economy, but we must consider whether they can be afforded in the economic and fiscal environment that I've talked about today, English said in Auckland.
In a speech to CEOs and senior executives in Auckland, the minister said now the government's books are undoubtedly in worse shape than estimated in December, with ongoing budget shortfalls and an expected doubling in Crown gross debt in coming three years.
He said Crown gross debt would hit 45% of GDP by 2013, without any policy change, up from the main December forecast of 33%. Further, this could exceed 70% by 2023 compared to the main estimate of 57%.
English said New Zealand entered recession ahead of Australia and some of the other Asian nations. He expects it to be the sixth quarter of recession in New Zealand.
He added, we now expect the New Zealand economy to permanently lose about NZ$50 billion of output over the three years to 2012, compared with what would have happened without the recession.
According to the Treasury report released on April 3, New Zealand's budget deficit for eight months to February widened more than expected as recession continued to impact government's finances. The operating deficit was NZ$8.4 billion for eight months to February compared to the NZ$3.2 billion surplus forecast in the Pre-Election Update.
In preparing for Budget 2009, English added that they will focus on reprioritising large sums of low quality spending into higher priority initiatives. English will deliver the budget on May 28.
He said the budget will have three main parts. First, it will continue the measures taken to help New Zealanders through the current global downturn. Secondly, the budget will put in place longer-term initiatives to lift productivity, improve competitiveness and sharpen New Zealand's future economic performance. The third part will contain steps towards consolidating the Government's fiscal position and implementing policy changes.
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