Key warns of major blowout in deficit

Photo / NZ Herald

Prime Minister John Key has warned that today's half-yearly opening of the books will reveal a "bigger hole" than the $13.3 billion previously forecast.

The cash deficit would be "at the outer limit of what we regard as acceptable".

Economic growth this year would also be slightly lower than the forecast 3.1 per cent, he said at his last post-Cabinet press conference for the year.

Mr Key is leaving his Finance Minister, Bill English, to reveal the updated numbers today at 1 pm. Mr English will also release for the first time what will be called the Government's investment statement, designed to show how well or poorly the state's assets are managed.

The May Budget forecast that a cash deficit of $13.3 billion would fall to $9.7 billion in 2012, then $7.5 billion and $6 billion by the end of the 2014 year.

Mr Key said the new deficit forecast would be "a significant number".

"It is not a number you would like to see repeated but we need to acknowledge that there are a number of factors that have been a little beyond our control...events of the past six months - particularly the Canterbury earthquake and a more subdued than expected domestic recovery - have taken our fiscal position to the outer limit of what we would regard as acceptable."

The tax take was down due in part to people saving and investing more, and spending and borrowing less, but expectations were that it could come back into line next year.

Mr Key said the bigger picture was to return the books to surplus as fast as possible, "take the pressure off any impending rises that might otherwise occur in interest rates and try and take the pressure off the exchange rate".

He said the figures would not surprise the credit rating agencies.

Standard & Poor's changed the outlook on the country's long-term currency rating from stable to negative on November 23. The rating itself was affirmed at AA plus.

The change in outlook implies a one-in-three chance of downgrade in the medium term.