Govt books on track for surplus

Photo / Mark Mitchell

Economists sceptical return to black will be achieved by target of 2014-2015

Government accounts for the year ended June are a case of so far, so good in terms of its objective to return to surplus.

But economists remain sceptical that that can be achieved by the target year of 2014-15.

The operating balance excluding valuation gains and losses (Obegal) was a deficit of $9.2 billion - half the quake-hit level of 2010-11 - or 4.5 per cent of gross domestic product.

While it was $800 million worse than forecast in the May Budget, the difference is explained by a $1.4 billion writedown of KiwiRail assets. Excluding that, the deficit would have bettered the target by $600 million.

Earthquake-related costs contributed $1.9 billion to the latest deficit, compared with $9.1 billion last year.

Excluding quake-related costs, the Obegal deficit narrowed by $2 billion from last year, or 1 per cent of GDP, to $7.3 billion.

The cash deficit of $10.6 billion was $1.25 billion better than the Budget forecast but pushed net debt to $50.7 billion, just under 25 per cent of GDP.

However, that compares favourably with an average net debt of 84 per cent of GDP for the 20 largest advanced economies, according to the International Monetary Fund's Fiscal Monitor, released on Monday.

Infometrics economist Matt Nolan said that with the economy continuing to recover, albeit at a more gradual pace than had originally been anticipated, we could expect the deficit to close further in 2013.

"Conspicuously absent from [the] release were any accompanying comments from [Finance Minister] Bill English reaffirming the Government's commitment to returning to surplus in 2015," Nolan said.

"However, we have never viewed this as a realistic target and instead are expecting a surplus, at the earliest, in 2016."

Bank of New Zealand economist Doug Steel also expects a deficit, albeit one which has shrunk to around 1 per cent of GDP by 2015.

The direction of change in the fiscal accounts would be more important to the rating agencies than the precise timing of any return to surplus, he said.

The tax take was up $3.5 billion on the year before, growing twice as fast as the nominal GDP, a proxy for the tax base. The lion's share of the increase, $2 billion, was from the taxation of business profits.

Core Crown expenses fell by $1.4 billion from the year before, largely reflecting a $1 billion reduction in the expected cost of the weathertight homes financial assistance package and a $500 million reduction in the cost of carbon credits issued by the Government under the emissions trading scheme.

The Government's bottom line, the operating balance, gets blown around by factors beyond its control like the bond yields, which drive the discount rates used to calculate the net present value of the liabilities of ACC, and by the performance of investment markets, which affects the value of the New Zealand Superannuation Fund's portfolio.

Such changes added $5.6 billion to the bottom line deficit in the latest year, pushing it to $14.9 billion, while they reduced it by $5 billion to $13.4 billion the previous year.

Government accounts
* Operating balance excluding valuation gains and losses was a deficit of $9.2 billion.
* Excluding quake-related costs, the deficit narrowed by $2 billion from last year to $7.3 billion.
* Cash deficit of $10.6 billion is $1.25 billion better than the Budget forecast.