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Bill English delivering Budget 2009 - Source: ONE News -
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The economic outlook is brighter than it was at the beginning of the year, but Finance Minister Bill English has sounded a note of caution saying serious challenges still lie ahead.
Treasury released new forecasts on Tuesday which showed that the recession had hurt, but not as much as feared, and the effects would linger for a shorter time.
It was predicted that 124,000 jobs would go in the two years until the end of 2010, but now that figure has been slashed to 60,000, so 64,000 fewer jobs are expected to be lost than was originally feared.
Partly that is because businesses have hung on to workers by
cutting their hours and pay, but it is also because the economic
nightmare never eventuated.
"The recession is turning out not to be as deep," says English.
Back in May the forecast was that the economy would shrink by
1.7% in 2010. Now the forecast is that the economy will shrink by
just 0.5% next year.
English says the economy is still in a hole but the hole is half
the size talked about back in the May Budget.
"That $50 billion hole is now a $23 billion hole," he says.
English says the improvement reflects the stabilisation of the global economy and government initiatives put in place to fight the recession.
"However, that does not mean that all of the problems of the recession have passed - risks remain that growth could weaken again," he says.
The government's books will still not return to surplus until 2016 according to Treasury, which is better than the previously forecast 2018.
Labour's finance spokesman David Cunliffe says Treasury is taking a conservative approach to the strength of the economy in its latest forecasts.
Cunliffe says the government was talking down the recession as it prepared for a tough budget.
"The Government is talking down the strength of the recovery because they do not want the public's expectations to rise ahead of a budget that will be a very tight budget," Cunliffe says.
Budget focus
English also outlined his plans for next year's Budget, which he says would be a "platform for growth".
He pointed to the need for tax reform, saying that by 2024 the average income would be above $70,000 or the top tax rate.
A tight rein would be kept on spending in next year's Budget with a new spending limit of $1.1 billion, rising by 2% per annum after that.
Most of this money would go on health and education and other new policy would have to be funded through redirecting money spent on "poor value" activities.
Last year's budget allowed for $1.45 billion in new money and the government reprioritised around $2 billion in other spending.
English said next year's budget would not find anywhere near that money and he warned that if departments wanted to lift wages they would have to find money from within their current budgets.
New capital spending would remain at $1.45 billion.
English said restraint was necessary as net debt would still rise to $57.5 billion in 2013, compared to the budget forecast of $62.6 billion.
Even small increases of spending above this would lead to debt levels that would make it difficult for future governments to weather the next recession.
As a result the government would look at more sophisticated ways of capping spending rises in the 2010 budget than the current new spending limit.
Earlier on Tuesday, economic think tank,the New Zealand Institute of Economic Research, released its outlook for the next few years. It also predicted improved unemployment rates and GDP growth, though it said diversity in its forecasters' predictions show that the outlook remains uncertain.
