Bill English flags 'challenge' to budget surplus

Minister of Finance Bill English says the Government plans to sell some of the country's 68,125 state houses, currently valued at $18.7 billion. Photo / Jason Oxenham

Finance Minister Bill English has warned that returning to surplus this year will be a challenge due to falling dairy prices and low inflation.

However, the New Zealand economy remained on track, with incomes and the number of jobs set to rise over the next few years, he said.

Mr English said next month's half yearly fiscal and economic update from the Treasury may not forecast a budget surplus.

The Treasury projected a surplus of $297 million in the year ending June 30, 2015, on an operating balance before gains and losses basis in the pre-election economic and fiscal update released in August. That was reduced from a projected surplus of $372 million in the May budget.

"The unusual current combination of economic circumstances is likely to have an impact on these updated forecasts," Mr English said in a speech this morning. "As we've said all along, returning to surplus this year will be a challenge.

"The Treasury's best assessment of the latest data and the impact on government revenue will be included in the Half-Year Update next month.

"The unusual current combination of economic circumstances is likely to have an impact on these updated forecasts," Mr English said. "As we've said all along, returning to surplus this year will be a challenge.

"But we believe the strength of the economy and constrained government spending can deliver a surplus when the final accounts are published late next year.

A combination of lower commodity prices and low inflation "means that the nominal or dollar value of New Zealand's economic output will not grow as fast as previously expected," Mr English told the ASB business breakfast in Auckland. "This will affect farm and company incomes and we expect this to flow into the Government's books through lower revenue."

The Treasury is scheduled to release its update forecasts in the half-year economic and fiscal update on December 16 and is compiling its projections in what Mr English called "unusual times for global economies".

Surveys showed businesses and consumers were confident about the future and indicators of activity in manufacturing and services remained strong, he said.

Also, low global inflation and a relatively strong kiwi dollar meant "we are not seeing the cost of living increases that would usually go with the kind of real economic growth we're experiencing right now."