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Budget Forecasts Show That 2011 Could Be A Very Black Budget

Fuseworks Media
Fuseworks Media

By Ian Llewellyn of NZPA

Wellington, May 28 NZPA - The mid-term spending forecasts in the budget show that unless the economy improves soon the 2011 election year budget could be one of the grimmest ever.

Finance Minister Bill English's first budget has allowed for spending increases until 2010 and then the big spending portfolios flat line from there.

Health spending in the budget is forecast to increase from $11.2 billion in 2008 through to $13.4b in 2010, and then dropping slightly in each of the coming years.

It is a similar story in education which rises from $9.5 billion in 2008 to $11.3 billion in 2010 and then virtually flatline from there.

The former finance minister Michael Cullen built into health an automatic increase for cost pressures such as wages and inflation.

The budget documentation shows in the list of fiscal risks that these increases are now an unquantified risk which "the Government is now considering how best to enable the sector to manage".

Mr English has allowed for $1.4 billion increases in spending in 2011 and additional $1.1 billion in the following years.

When Dr Cullen had budget surpluses this money would have been for new spending.

Now in these harsh economic times Mr English will have to use that money to fund any cost pressures across the entire government, as well as any other initiatives a National Government might want to do.

There are a couple of things in Mr English's favour -- inflation pressure is low and he has bought a year's grace for departmental bosses to understand just how tough the future is going to be.

There are also numbers that show just how harsh the next few years could get.

Finance costs are forecast to rise $2.4 billion in 2008 to $4.3 billion in 2013.

Social welfare expenses are forecast to go from $17.8 billion in 2008 to $22 billion in 2011 and $23.5 billion in 2013.

Mr English's first budget is in many ways a budget of adjustment and buying time to see if the country can adjust to the new world the credit crunch has created.

His colleagues will be praying the world economy recovers soon, because otherwise 2011 could be a very black budget indeed.


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