25 June 2002 Media Statement

Prefu outlook strongly positive

“The outlook in the 2002 Pre-election Economic and Fiscal Update shows a robust economy and a robust Crown balance sheet and testifies to the quality of the government’s management,” Finance Minister Michael Cullen says.

The Prefu has growth averaging around 3 per cent over the next four years, unemployment remaining at its current low levels, employment increasing steadily and wages growing ahead of inflation without triggering an inflationary spiral.

“That is good news for New Zealand households,” Dr Cullen said.

“The fiscal position is equally positive showing operating surpluses sufficient to make contributions to the New Zealand Superannuation Fund while also keeping gross debt below the government’s target of 30 percent of GDP.”

When Dr Cullen came into office he instructed the Treasury to tighten up the procedures governing the fiscal risks assessment.

“Treasury has made a series of changes in response to that instruction, the effect of which has been to make the process more transparent. The 2002 Prefu continues that trend by identifying initiatives for which the funding is limited to a specific number of years.

“This does not mean the government will not extend the funding beyond the specified limit because in some cases, it may. It simply means that no decision has yet been taken.

“This is a much higher standard of disclosure than we inherited,” Dr Cullen said.

“In the preparation of my first budget, I found the previous National administration had left a number of unsustainable but concealed spending reductions which together amounted to around $265 million over the term.

“In effect, the money simply ran out but the services and programmes it was funding did not, and could not be abandoned. The affected votes included: Police, Inland Revenue, Work and Income, Customs, and Child Youth and Family.

“This government had not anticipated having to make up that $265 million shortfall and I determined that no other government should be caught the way we were,” Dr Cullen said.
The Prefu forecasts were prepared within five weeks of the 2002 Budget forecasts being signed off. Revisions between the two sets of figures were minimal and were driven almost entirely by a rise in the exchange rate.

“As a result, Treasury has reduced slightly its growth forecast for the 2003-04 year and shaved a little off its surplus projections across the forecast period. However Treasury’s advice is that the changes are not sufficient to require the government to increase its borrowing programme.

“This is one of the most popular and successful governments in recent New Zealand history. We have provided decisive leadership, honoured our election commitments, introduced a more balanced policy framework and asserted a constructive role for government in the economy.

“We have also governed for the longer-term: most noticeably through the establishment of the New Zealand Superannuation Fund and of Industry New Zealand, the innovation and growth strategy, the tertiary education reforms and the three year health funding package.

“These are all achievements of which we can be proud. Of particular pride to me as Finance Minister is that we have managed to do all this while running one of the strongest sets of public accounts in the OECD,” Dr Cullen said.

ENDS

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