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NZ books look good despite dairy woes

NZ NewswireNZ Newswire 26/05/2016 Dave Williams

A growing economy should give the government the cash cow for a $6.7 billion operating surplus in four years' time and leeway for tax cuts.

Treasury documents accompanying Thursday's budget say the Crown's books "are in good shape and the outlook for the economy is positive".

Gross domestic product is expected to grow to 3.2 per cent in 2018 before tapering back to 2.5 per cent in 2020.

By then GDP will be worth around $300b (it's about $243b now) and the government, although going further into debt in 2017 (25.6 per cent of GDP), will be taking more tax and have paid down its debt to $62.3b, or just over 20 per cent of GDP.

Inflation is expected to lift from near zero to 2.1 per cent by 2020 and unemployment to drop from 5.9 per cent to 4.6 per cent.

"We have solid economic growth and the government's books are in good shape - giving us options we didn't have eight years ago," Finance Minister Bill English said.

Any decision on tax cuts were for the future but the surplus gave the government options, he said.

The government has been operating at a loss since 2010-11, when it bled $18.4b but last year returned to a small surplus.

The government's operating balance is expected to rise to $2.5b in 2018-19 and $6.7b the year after that.

Treasury says the economy has grown more than it expected in the last year, and although dairy prices are down, they are expected to pick up from 2017 and 2018.

Good figures from tourism, immigration and construction are all helping build the pie.

However, it notes New Zealand's economy could be hurt if China's economy takes a sharper than expected slowdown or Australia's slow growth continues for longer.

There are also other risks, such as terrorist attacks in Europe, conflict in the Middle East, Britain leaving the European Union and slow global growth.

The local economy was also vulnerable to an upturn in Australia's job market (therefore attracting migrants there) and any sharp fall in Auckland's house prices could could see Aucklanders suddenly spending less.

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