Treasury is about to reveal just how much damage the turmoil on the equity and financial markets is doing to the Government's books.
The crown accounts for the six months to December 2007 are released tomorrow and Finance Minister Michael Cullen said the headline operating surplus predicted forthat period will be slashed.
He said the forecast $2.5 billion surplus could be slashed by a third to $800 million.
The main driver is the performance of the Government agencies with large investments, most notably the New Zealand Superannuation Fund.
The $12 billion fund said last week it returned minus 1 per cent growth for the six months to December 2007.
This is $635 million less than the fund would have earned if it had invested in Treasury bills.
These losses are not realised as the fund will just hold on to its portfolio and has 30 years to wait for its investments to rise again.
The bad result is also a blip in performance with its overall annualised return running at 12.68 per cent since it began operating in late 2003.
This is $1.56b more than the fund would have received if it has just bought Treasury bills.
The crown's two other big investors - the Government Superannuation Fund and ACC - are also likely to show big book losses.
The accounts will only tell part of the story as they will not show the returns for January when share markets around the world took a real tumble.
Dr Cullen will not be happy with the result, but he will be pleased that it will destroy the arguments of those who claim the operating surplus is available as cash to spend or return as tax cuts.
The operating surplus includes book keeping items which are not available such as the gains and losses made by the super fund.
The figure which more closely resembles the Government's financial position - the operating surplus after book keeping gains and losses - is said to be pretty much on forecast.
In December, Treasury predicted that in 2007/2008 financial year there would be a $7.3 billion headline operating surplus and $6.4 billion surplus after bookkeeping losses and gains.
Despite the blows, the Government's books are expected to continue to show a healthy state with overall debt ratios below targets.
