Government surplus bigger than thought

New Zealand's economy is continuing to do better than the Government expected, filling its coffers and creating larger surpluses than predicted.

Treasury opened up the books in the Pre-Election Fiscal and Economic Update today predicting the Government would get $29.1 billion in total operating surpluses between now and 2008/2009.

Finance Minister Michael Cullen said New Zealand was probably in a better position than any other developed country to cope with the pressures of an ageing population.

The surplus for the current year would be $600 million higher than predicted in the May budget, reaching $7.29 billion. A more robust economy than Treasury predicted is expected to push up the tax take and Dr Cullen said there was some room for increased spending on top of already announced initiatives.

"Surpluses over the forecast horizon are sufficient to make payments to the New Zealand Superannuation Fund, meet most of the Government's capital investment programme and reduce net debt to zero," Dr Cullen said.

Dr Cullen said, while there was "limited room for foregone revenue", tax cuts would put the Government's strong fiscal position at risk and would force up interest rates and blow out the current account deficit.

Treasury said the economy was showing more signs of "imbalance" with household spending outstripping predictions and growth in jobs and low unemployment contrasting with slower export volume growth and the strong dollar dragging on the export sector.

Treasury forecast economic growth of 2.2 per cent for 2006 and 2.6 per cent, 3.5 per cent and 3.1 per cent in the following three years.

Tax revenue was $541 million higher in the 2005 June year and was forecast to be $731 million higher in 2006 and $1.1 billion higher in 2007.

Treasury said there would be no change to the domestic debt programme for the 2005/2006 year with $2.2 billion required.

Borrowing for each of the next three years is now forecast to be $2.05 billion down from $2.8 billion predicted at the budget.

- NZPA