Tough Budget despite deficit gains - English

Finance Minister Bill English says despite the Crown accounts being better than forecast, there won't be any big increase in Govt spending. Photo / Rotorua Daily Post

Finance Minister Bill English is still warning of belt tightening in the upcoming Budget, despite the Government's books turning up better than expected results for the first seven months of the financial year.

The Government's fiscal position in January was better than forecast because of improved tax income and lower costs, Treasury said today.

The operating balance excluding gains and loses, which strips out unrealised investment gains or losses, for the seven months to January 31 was a deficit of $3.36 billion, or 20.8 per cent better than the forecast made in December's fiscal update for a deficit of $4.24b - largely because of a higher tax take, including the one-off payments by foreign owned banks, and reduced government expenses.

But English said the gains were incremental improvements in the context of much bigger fiscal challenges facing the country over the next few years.

Some of those gains could reverse in the coming months, he said.

"With another six years of forecast budget deficits and net Crown debt forecast to treble to $65b by 2014, we won't have those choices for some time."

The Government would operate within the $1.1b allowance it set out for new spending in last year's budget and most government agencies would receive no new money when the budget was delivered on May 20.

They would need to reprioritise their existing spending to improve their performance, he said.

But the Council of Trade Unions said the figures showed the Government was exaggerating New Zealand's financial problems.

Secretary Peter Conway said the country did face fiscal challenges "but the Government now has to face up to the fact that it has talked up the fiscal problems to a greater extent than was warranted".

New Zealand had the third lowest gross debt in the OECD and the fifth lowest net debt last year.

Also, Treasury had indicated that $240 million gross issuance per week converted to $130 million net, and $110m in repayments when it was averaged over four years from July 2009 to June 2013, said Conway.

"While this still amounts to a significant borrowing programme, the Government should be more transparent about the fact that nearly half of the $240 million figure ministers regularly quote is actually repayment of debt."

Treasury said corporate taxes were still weaker than expected but the indirect goods and services tax was bringing in more than expected, which it expected to last through the rest of the fiscal year.

The net operating balance was a deficit of $630m, $1.43b or 69.5 per cent less than forecast, on higher investment returns.

Net government debt stood at $22.82b, which was virtually in line with forecast, equating to 12.3 per cent of gross domestic product.

The Government's net cash position, the difference between all income and spending - operational and capital - was a deficit of $5.19b compared with a forecast deficit of $5.52b.

- NZPA