Cutting personal taxes and increasing GST was designed to encourage us to save more and spend less.
Larger than forecast deficits in the Crown’s financial statements reinforces the need for tight fiscal discipline alongside the Government’s ongoing efforts to move resources to frontline services, Finance Minister Bill English says.
Lower than forecast tax revenue combined with the fiscal impact of the Canterbury earthquake have contributed to a $4.4 billion operating deficit before gains and losses in the four months to 30 October.
“The $1.1 billion lower-than-forecast tax take is largely the result of lower than expected business profits and lower GST as New Zealanders spend less and save more,” Mr English says.
The drop in revenue is partly offset by $440 million lower than forecast government spending.
“While the Government’s books have taken a hit from the effects of lower consumption and increased household saving, this trend creates a strong platform for faster growth in the medium and longer term as we rebalance the economy towards savings, productive investment and exports.
“However lower consumption, a weaker global outlook and the fiscal impacts of the Canterbury earthquake will mean slightly lower growth and slightly higher deficits in the short term before improvements show through.
“This reinforces the need for sound financial management and ongoing discipline in Government spending if we are to get back to surplus by 2016. That is why the Government is committed to spending restraint for the foreseeable future.
“In the New Year the Government will consider further decisions around how to increase efficiency in the public sector and how it manages some of its large and growing expenses.
“This will be assisted by report of the Welfare Working Group, the Government’s review of spending on policy and the ongoing response to the report of the Housing Shareholders Advisory Group,” Mr English says.
Whatever prescription the government comes up with, we can’t spend our way out of this.
Over taxing and over spending by the previous administration were major contributors to the sorry state of the national accounts, continued fiscal rectitude has to be part of the solution.