Govt will only ditch Budget surplusif world economy implodes

Article – BusinessDesk

Jan. 26 (BusinessDesk) – The government still expects to post a Budget surplus in 2014/15, but it will be smaller than previously forecast and could be ditched if the European debt crisis triggered a “major shock to the global economy,” …

Govt will only ditch Budget surplus target if world economy implodes: Key

By Pattrick Smellie

Jan. 26 (BusinessDesk) – The government still expects to post a Budget surplus in 2014/15, but it will be smaller than previously forecast and could be ditched if the European debt crisis triggered a “major shock to the global economy,” Prime Minister John Key says.

But further belt-tightening will be necessary if the world growth outlook gets worse than it is now and the projected surplus would more likely be $300 million to $500 million, rather than the $1.4 billion most recently forecast.

More detail will emerge in the Budget Policy Statement, scheduled for release on Feb. 16.

“If the international outlook worsens between now and the Budget we may have to do more than we are currently anticipating to reach our surplus target, bearing in mind that the target is still three years and many forecast revisions away,” he told several hundred businesspeople in West Auckland in a speech billed as a state of the nation address.

“If the absolute worst happened, and there is a major shock to the global economy, the government would look at whether retaining the surplus target would actually harm the economy by forcing a sharp reduction in demand.”

Key tied much of Europe’s difficulties to its gradual loss of export competitiveness and compared that to a similar loss by New Zealand which Key said had occurred through most of the last decade.

He outlined major elements of a 120-point economic agenda, which would be updated formally at regular intervals, for the first time in mid-2012, with social welfare and state sector reforms a major part of this year’s activity.

Key predicted that moving to a benefit system that says “if you can work, you should work” would be politically challenging.

“It’s likely to be very bumpy over the next 12 months as we introduce those reforms,” he said. “But if we don’t, it’s not only fiscally unsustainable, but will also be trapping 220,000 children in a state of poverty.

“That reform simply has to happen.”

Key said he had also been “quite clear with my Ministers that there needs to be significant change in the way the state sector is run”, and would be releasing the final report of the Better Public Services Advisory Group “in the next month or two.”

While efficiency was partly the challenge for government agencies, it was also about improving the quality and responsiveness of services, strong and effective leadership, and “orienting the state sector around achieving results that really matter to New Zealanders.”

“The state sector as a whole could do much better at delivering value for money, and at achieving results, particularly in areas that cut across multiple deprtments, and which have proved difficult to get traction on over many years.”

Education reforms, including such experiments as creating charter schools, would forge ahead because the “disgrace” of underachievement, especially among Maori students, needed fixing or New Zealand’s future workforce would be unable to compete with the “hundreds of millions of Chinese, Indians and others from Asia who will be coming out with tremendous degrees.”

“They are the people our graduates will be competing with,” Key said.

Key said the government’s priorities, in order, for 2012 were responsibly managing government finances, a more competitive and productive economy, better public services, and the rebuild of Christchurch.

(BusinessDesk)

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