Monday, 19 May 2014

Budget 2014: the bigger picture

Source: Treasury, Budget 2014
Being a politics geek, over the weekend I read through the Budget 2014 documents. The executive summary tells you most of what you need to know, and comes with handy graphs. I've highlighted two graphs here which to me emphasise the bigger picture of this year's budget.

Government spending shot up in the 2008/09 year while revenues declined as New Zealand's economy was in recession. This is where the Treasury's infamous "decade of deficits" forecast came from. Then came the global financial crisis and the collapse of many finance companies, the Christchurch Earthquakes, Pike River Mine Disaster... spending remained high as a proportion of GDP.

It then declined as a % of GDP from the 2010/11 year onwards. This is significant as it shows you can increase spending while decreasing the size of the government - in 2010 total government spending was at $64 billion, while in Budget 2014 it's sitting at $73.1 billion.

Meanwhile, with ongoing surpluses forecasted, the government's debt is set to decline as a % of GDP. Today it's sitting at 25.8% of GDP, it's due to drop to 20% of GDP by 2020. The overall picture is clear: now that we're back in surplus, we need to be restrained on new spending while paying down debt. The path taken by the government is the right one.