The government remains committed to a return to surpluses by 2014/15 in spite of the impact Canterbury’s earthquakes have had on the deficit.
The Crown’s accounts for the year to 30 June 2011 show net expenses of $9.1 billion for the Canterbury earthquake last year made up almost half of the Government’s $18.4 billion operating deficit before gains and losses.
“This is an unusually large deficit, but it includes the significant costs of the Canterbury Earthquake Recovery Fund and the updated assessment of Earthquake Commission costs,” Mr English says.
“Setting aside the earthquakes, we’ve made good progress compared to estimates five months ago in the Budget. A combination of higher than forecast revenue and lower than forecast spending has reduced the underlying deficit by about $2.8 billion.
“However, this was more than overshadowed by the higher earthquake costs.”
The deficit is concerning. But given the country was in recession before the rest of the world; that growth from about 2004 was the result of debt-fuelled spending; and that this government has faced an unprecedented series of natural and financial disasters, it could have been a lot worse.
Despite the Canterbury earthquakes, Treasury notes economic growth was better than expected in the first half of 2011, driven by a recovery in domestic demand and higher export prices.
“This flowed through to tax revenue, which rose for the first time in three years due to higher income, private consumption and business profits,” Mr English says. “And despite the earthquakes, management of public sector finances continues to improve.
That is a significant achievement given the continuing difficulties in Canterbury which accounts for about 10% of the economy and we need more of this government’s economic medicine.
“In the current uncertain global environment, it’s important the Government remains focused on its plan to return to surplus faster and building a competitive economy so we can sell more to the world. This is certainly not a time to be promising to borrow more, spend more and tax more.”
In spite of all the set backs it’s faced, National has stuck to its plan to reduce government spending and deliver on its promise of polices which promote savings, investment and export-led growth.
Normally a deficit this size so close to an election would be good news for the opposition. But when Labour squandered the good years and its Finance Minister Michael Cullen boasted about spending the lot after his last Budget few outside its core supporters, believe they should be trusted back in government.