Five things to know about the Government accounts

Name: Treasury forecast: From $176m surplus to $401m deficit
Uploaded: 2015-12-15T13:11:43+13:00
Duration: 203 s
Description: New half-yearly forecasts by Treasury have seen the $176 million surplus forecast for the current financial year turn into a $401 million forecast deficit, but Finance Minister Bill English says he won't make any spending changes to try and maintain a surplus. "It's not disappointing; it's just another Treasury forecast,"

NZ Herald

15 Dec, 2015 05:05 AM2 mins to read

New half-yearly forecasts by Treasury have seen the $176 million surplus forecast for the current financial year turn into a $401 million forecast deficit, but Finance Minister Bill English says he won't make any spending changes to try and maintain a surplus. "It's not disappointing; it's just another Treasury forecast,"

Richard Forgan is a partner in PwC's consulting practice. He was formerly Deputy Secretary, Budget & Public Services at the Treasury and the inaugural executive director of the National Infrastructure Unit. He answers five questions on Treasury's forecast announced today.

Can the Government's surplus be sustained?

The Treasury is forecasting a small operating deficit (c. $200m) in the year to June 2016, although the Minister of Finance himself was more optimistic about maintaining the surplus. Returning to significant surpluses will require the stronger growth now forecast for 2018/19 (above 3 per cent), but in principle, maintaining the surplus in the longer run should be entirely possible. The language is changing a bit - "broadly in balance" seems to be the new [Back-in-the-] Black.

Is there room for tax cuts prior to 2017 election?

The Minister of Finance has kept the $2.5 billion allowance for new spending in Budget 17 (and this is built into the forecasts). This will give him both a buffer against a downturn, and choices about tax cuts that year.

Richard Forgan, PwC consulating partner and former Deputy Secretary, Budget & Public Services at the Treasury. Photo / Supplied

How have world events and their effects on the global economy impacted New Zealand's economy?

Global economic growth has slowed, and growth in China in particular is expected to continue to trend down, which has knock-on effects across much of South East Asia and Australia. On the other hand, low oil prices and a depreciating dollar have been positive for New Zealand's exports (up 10 per cent for non-dairy exports in the last 12 months). Net migration has also played a large part in recent economic performance, with New Zealand relatively more attractive compared to other countries.

Has the Government got debt under control?

The target remains the same - Net Debt to GDP ratio of 20 per cent. Peak debt has increased (26.5 per cent to 27.7 per cent) and moved back a year to 2018. This is principally due to increases in capital expenditure, and lower than expected tax revenues (a consequence of continued low inflation). But, this is still "in control".

Should Govt boost infrastructure spend to stimulate the economy?

I would encourage increased spending on high quality infrastructure that will benefit NZ in the long run. But much less keen on a big spend-up just to create short-term stimulus from more construction work.