Don't read too much into better Govt accounts

The Government's fiscal position was better than forecast in May but Finance Minister Bill English has warned people not to read too much into it.

The operating balance for the 11 months to May 31 was a deficit of $7.16 billion, or 14 per cent better than the forecast made in May's budget of a deficit of $8.33 billion, Treasury reported today.

It said the improved deficit was largely because of net gains of around $1 billion from the NZ Superannuation Fund and ACC.

Despite the improved returns the prolonged recession saw the accounts remain deeply in deficit.

New Zealand was facing a "large structural deficit" and it was "entirely appropriate" for the Government to borrow to help the country through the recession.

But it was important to get back into surplus in less that 10 years, Mr English said.

The borrowing would preserve welfare entitlements, invest in productive infrastructure and prepare the economy for recovery, he said.

"There will need to be ongoing restraint on government spending increases to ensure that future taxpayers are not burdened with higher debt."

In the accounts released today overall tax revenue was on forecast, but the company tax take was down around $400 million because of the recession.

The operating balance excluding gains and losses (obegal), which strips out unrealised investment gains or losses, was a deficit of $1.21 billion, $432 million lower than forecast because of lower than expected government spending.

Net government debt stood at $15.69 billion, which was $547 million higher than forecast, equating to 8.7 per cent of gross domestic product, against a forecast 8.4 per cent.

The government's net cash position, the difference between all income and spending -- operational and capital -- was a deficit of $7.13 billion compared with a forecast deficit of $8.18 billion.

The Treasury forecast in the 2009/10 budget an overall operating deficit of $9.3 billion for the fiscal year to June 30, with an obegal deficit of $2.92 billion, and net cash shortfall of $8.46 billion.

It also forecast large budget deficits for much of the next 10 years and increased borrowing to cover the shortfalls. The Government's net debt was forecast to peak at around 40 per cent of gross domestic product in 2016/17.

However, ratings agency Standard and Poor's, which had previously warned of a downgrade on the deteriorating outlook, said the budget strategy of heading back to surpluses and maintaining low debt justified an upgrade of the outlook to stable from negative.

NZPA