The Government would consider forgoing its target of returning its accounts to surplus by 2014-15 if the global economy deteriorated further, Prime Minister John Key indicated in a speech yesterday.
While confirming the Government was still on track to declare a surplus, it was much smaller than previously forecast, at between $300 million to $500 million.
"Given the events in Europe, this surplus is understandably smaller than was forecast in the Pre-Election Fiscal Update. But we still remain on our tight fiscal track."
Mr Key said a fuller picture would emerge with the Budget Policy Statement being released on February 16. After that, the next update would be the May Budget.
The Budget would set out the Government's revenue and spending and show what the Government was going to do to meet its fiscal targets, get back to surplus and start reducing debt, he said.
If the international outlook worsened between now and the Budget, the Government might have to do more than it was currently anticipating to reach the surplus target - bearing in mind the target was still three years and many forecast revisions away.
"If the absolute worst happened, and there was a major shock to the global economy, the Government would look at whether retaining that surplus target would actually harm the economy by forcing a sharp reduction in demand."
Outside that scenario, the Government was still "firmly committed" to the target surplus in 2014-15, Mr Key said.
In his speech, the Prime Minister outlined his four priorities the Government would focus on. They were:
• Responsibly managing the Government's finances.
• Building a more competitive and productive economy.
• Delivering better public services.
• Rebuilding Christchurch.
The Government would implement the 120-point economic plan released during the election campaign, he said.
"We have a busy agenda. Within our public services work we will be implementing major welfare reforms, focusing on raising achievement across the education sector, improving health services and introducing legislation to strengthen sentencing, parole and bail laws."
The Government was looking at the way public services were organised. The state sector could do much better at achieving results and at delivering value for money, Mr Key said.
"I will have more to say about this when we release the Better Public Services Advisory Group report and outline our direction for state sector reform in the next month or two."
This year, the Government would get on with rebuilding Christchurch - the top priority, he said. The Government remained totally committed to the reconstruction of Canterbury and Mr Key said he was determined to see that momentum was maintained.
