There may be no extra spending from Finance Minister Bill English when he delivers his Budget 2012 on May 24 but he gave enough hints yesterday to suggest the document will be anything but boring.
Pre-Election Fiscal Updates (Prefu) are the long-lasting legacy given to New Zealand voters by former National Party finance minister Ruth Richardson.
However, Treasury growth and revenue forecasts have been so inaccurate as to make the Prefu or Budget Policy Statements practically meaningless.
Now, Mr English is looking to implant his enduring legacy through changes to the Public Finance Act.
One of the most prominent pieces of information included within the speech was news the Government intended to strengthen the Public Finance Act so there were more checks and balances on ministers' spending decisions and their long-term effects.
The proposed changes will require future governments to:
- Consider the impact of their fiscal strategy on the broader economy, in particular interest rates and exchange rates.
- Set out their priorities for revenue, spending and the balance sheet, rather than focus narrowly on debt as is now the case.
- Take into account the impact of fiscal policy decisions on future generations.
- Report on the success and failures of past fiscal policy.
Mr English said the Government was also proposing to add a spending limit based on the rate of growth in inflation and population as a new principle of responsible fiscal management, as set out in the National-Act New Zealand confidence and supply agreement.
It would exclude spending on natural disasters, finance charges, the unemployment benefit and asset impairments as they were either outside the Government's control or they helped stabilise the economy in a downturn.
Under the proposal, if a government decided to temporarily exceed the limit it would need to explain the reasons and outline how it intended to ensure future expenses remained within the limit.
The Government intended to consult other political parties on the proposed changes, which would be included in a Bill to be introduced around the middle of the year.
"Naturally, we don't expect agreement on everything, but the broader the political support for these changes, the better," Mr English said.
The goal of returning to budget surplus by 2014-15 remains the Government's overarching goal and Mr English was at pains yesterday to remind his Wellington Employers' Chamber of Commerce audience just how tough that would be.
"Let's remember the Government's operating deficit before gains and losses last year was more than $18 billion, or 9%, of gross domestic product - about half of which was devoted to the earthquakes."
The Budget Policy Statement, in February, forecast the deficit would be about $12 billion in the current June year, before roughly halving in each of the subsequent two years before the books returned to surplus.
The scale of that challenge was again highlighted in preliminary Budget estimates ministers received in recent weeks.
They revealed a $1 billion deterioration in preliminary forecasts of the operating balance before gains and losses in 2014-15, compared with the BPS in February.
In other words, the preliminary Budget estimates showed a $640 million deficit in 2014-15, compared with the $370 million surplus predicted in the BPS.
That reflected several factors, including the impact of lower global growth on short-term New Zealand growth forecasts. That in turn flowed into lower government revenue expectations.
The Government was also seeing downward revisions to expected New Zealand Super Fund revenue and State-owned enterprises profits.
Mr English assured his audience ministers remained focused on staying on track to surplus in 2014-15.
What Mr English did not say, but will be expected to explain next month, was how the surplus will be achieved without savage spending cuts to some programmes.
