Budget 2014: Where’s the magic?

Forecast economic growth rising as high as 4% in 2016, and strongly growing tax revenues has allowed the Government to present a Budget that achieves a surplus, while increasing Government spending significantly, and still reduces the size of the Government relative to GDP.

The Government will spend $73.1bn in 2015 rising to $81.5bn by 2018. Yet despite that increase, core Crown expenses will fall from 35% of GDP in 2011 to less than 30% in 2017. Relative to the economy, Government is getting smaller.

And despite that extra spending, the government will run growing surpluses and meet a debt reduction target of 20% of GDP by 2020.

So where’s the magic?

“The magic in Budget 2014 is the forecast growth of the economy, the trick is making sure the magic is real,” PwC Corporate Tax Leader, Geof Nightingale says.

“Economic growth drives higher tax revenues, and, now we will return to surplus, as long as spending increases are kept to less than tax revenue increases, surpluses will continue.

“Net debt as a percentage of GDP also improves, but not because it’s being repaid. From 2015 no more is borrowed, with net debt peaking at $65bn. The government plans to hold it there while the economy grows around it.

“Budget 2014 walks a finely balanced line of increasing Government spending, generating surpluses to protect the future and allowing our debt to reduce as a proportion of GDP. But it relies heavily on us achieving the magic of economic growth.

“However, the sensible fiscal management presented by Budget 2014 should help to create that magic,” concludes Mr Nightingale.

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