Government's pot of gold just a fable

By KEVIN TAYLOR, political reporter

When Finance Minister Michael Cullen talks about the surplus in his Budget speech today he will be referring to "oberac".

It means "operating balance before revaluations and accounting policy changes" and Dr Cullen has used it since 2001 as the best measure of the underlying management of the Government's books.

But it doesn't reflect the true position of whether the Government has surplus cash or not.

Oberac confuses many and has created a public relations headache for Dr Cullen, who is tiring of being portrayed in cartoons as Scrooge McDuck sitting on a heap of cash.

Take the release of the Government's financial statements for the nine months to the end of March. Oberac was a record $7.4 billion. But little of it was excess cash, as Dr Cullen has been at pains to point out.

Other items must be removed to find the actual cash position. These are capital spending, depreciation, and retained profits of State Owned Enterprises and Crown entities.

Capital spending includes money for new roads, hospitals and housing, advances on student loans, and contributions to the burgeoning New Zealand Superannuation Fund.

Looking at the year ended June 30, 2003, oberac was $5.6 billion, but the actual cash surplus was $1.2 billion. The $4.4 billion difference was eaten up by capital spending and retained profits of SOEs and Crown entities.

So while Dr Cullen has a huge surplus, he's running it on purpose to save money in the NZ Super Fund and finance other capital spending.

All this means Dr Cullen's surplus is not what it appears to be and there will be no "pot of gold" left over in today's Budget.

But the circular political argument will continue.

Opposition politicians will keep complaining the huge surplus is not being used to cut tax rates, which National says it will fund through spending cuts in other areas and higher tax receipts from resulting increased growth.

National would also fund modest increases in debt.

Deputy finance spokesman John Key points out many businesses borrow for capital spending and running some debt on their balance sheets is sensible.

What is oberac?

* The measure used to define the Government's surplus.

* Means "operating balance before revaluations and accounting policy changes".

* Can be misleading - last year's "oberac" surplus was $5.6 billion but the actual cash surplus was $1.2 billion.

* The $4.4 billion difference went on capital spending and retained profits of state owned enterprises and Crown entities.