Surplus an illusion says Cullen

Finance Minister Michael Cullen will present the books differently in May's Budget because of concern about how the huge surplus is being portrayed.

The operating balance created the "illusion" of spending options that did not actually exist, he said yesterday.

The operating balance before revaluations and accounting changes (oberac) was $6.6 billion in the year to June but the cash surplus was only $520 million. The difference went on capital spending and New Zealand Superannuation Fund contributions.

But Dr Cullen said in prepared speechnotes there did not seem a way to explain that, and he had almost given up trying.

Instead the Budget would provide "greater clarity" on the cash position, he said.

"After a five-year struggle I am about to give up as lost the effort to educate the media on one of the basic questions of third-form accounting: what is cash?"

Opposition parties consistently point to the operating balance as justifying their calls for tax cuts. Dr Cullen consistently points out that there is little surplus cash available.

Even the Government's confidence and supply partner, United Future, keeps chipping away.

Finance spokesman Gordon Copeland said yesterday the "enormous surpluses" should be given back through tax cuts so households could repay debt.

Dr Cullen said the problem with the operating balance was it had not served well as a "headline indicator".

"In political economy terms it can create the illusion of spending options that do not really exist, and it leaves me as Finance Minister defending complex truths against an attack of appealing half-truths."

He said the cash surplus outlook was in fact "shaky".

The current forecast for this financial year was a $1.4 billion cash surplus, but the cash buildup would need to fund capital spending during the next three years when cash deficits of $705 million in 2006 and $1.5 billion in 2007 and 2008 were being forecast.