Govt has room to shift spending around over next two years, English says

Tuesday 16th February 2016

The government has scope to play with the timing of an extra $3.5 billion of spending tagged for the next two years if the global economy deteriorates and starts to bite locally, says Finance Minister Bill English.

Growing fears about China's slowing economy and heightened turbulence in financial markets is causing the government more headaches than three months ago, but hasn't spooked ministers into shifting its policy direction, English told Parliament's finance and expenditure select committee.

The government has already set aside an extra $1 billion of new spending for the 2016 financial year and $2.5 billion for 2017, which may be used in part for tax cuts, and has scope to adjust the timing of that expenditure to adapt to a changing environment. English announced today that Budget 2016 will be released on May 26.

"At any given time, you can construct a pretty negative scenario out of those global factors and it would be fair to say at the start of this year there was a bit more concern about the mix that's appearing than there was even three or four months ago," English said. "Within the fiscal track we've set we've got some room to phase between this year and next year, but we'd be a bit careful about reacting to the commentary of the week or the commentary of the month."

English and Treasury secretary Gabriel Makhlouf appeared before the committee to field questions on the December budget policy statement and half-year fiscal and economic update, which projected a shrinking tax base on low commodity prices and flat inflation.

Mahklouf told the committee that the economy grew more than expected in the second half of 2015, and may push growth to about 2.5 percent in 2016, ahead of the pace forecast in the half-year update.

"The economy isn't sprinting ahead, but no-one's is, but nor is ours crawling along either," he said.

Mahklouf visited Hong Kong and China recently and said the people he talked with didn't anticipate a "hard landing" in the world's second biggest economy.

"I think the worry about China's growth is over-stated. The slowdown is, of course, predictable. In fact, it's in line with the Chinese government's strategy to rebalance its economy from investments to consumption," he said. "It's also unhelpful to think of China as a single economic entity. It's more like the European Union, made up of multiple economies at different stages of development and growth and the impact of China's slowdown really depends on what you are selling and where in China you are selling."

China is New Zealand's biggest export destination, and has been singled out by the Reserve Bank as the biggest risk to New Zealand and the global economy due to its impact on global trade volumes and commodity prices, the rapid build-up of corporate indebtedness and the difficulty in switching the Chinese economy away from investment and manufacturing toward stronger private consumption and services.

BusinessDesk.co.nz

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