Govt's deficit is pushing the limit, says Key

Prime Minister John Key during his post-Cabinet press conference in Wellington today. Photo / Mark Mitchell

Economic data to be released tomorrow will show the Government's fiscal position is on the outer limit of what it regards as acceptable, Prime Minister John Key says.

Finance Minister Bill English will tomorrow release the Half-Year Economic and Fiscal Update and his latest Budget Policy Statement.

"They will show both economic growth and the Government's fiscal performance in the current year a bit below forecast in budget 2010," Mr Key said today at his post-cabinet press conference.

"The data will also show the effects of the events of the last few months, particularly the Canterbury earthquake and the more subdued than expected domestic recovery."

Mr Key would not reveal the forecast deficit ahead of tomorrow's releases, but said it was "a significant number...the tax take has been slightly less than we anticipated but the expectation is that it will come back into line next year".

Mr Key said all these factors had an impact on the economy.

"They have taken our fiscal position to the outer limit of what we would regard as acceptable...but in the end the big picture is to return the books to surplus as soon as we can, take the pressure off any impending rise in interest rates and take the pressure off the exchange rate."

He was asked whether the forecast deficit had reached $15 billion but he wouldn't disclose the figure and he told reporters to wait for Mr English's announcement tomorrow.

He said there were no real surprises in the figures, and the international credit rating agencies had anticipated the situation.

Mr Key said it was difficult to say whether the rebalancing of the economy through people saving more and spending less would continue, or for how long.

"How quickly we revert to type I don't really know...we spent quite a lot of time on a consumption-led boom," he said.

Asked about the possibility of more tax cuts, he said that was "something for the future...as I've said, there isn't going to be a lolly scramble going into the 2011 election. We can't afford it. It's as simple as that."

- NZPA