English hints at deficit in next week's Treasury forecast

Finance Minister Bill English. Photo / Mark Mitchell

Finance Minister Bill English says it will be a challenge to maintain and grow surpluses.

He told a select committee yesterday that the last two cycles of economic upturn, in the mid-90s and mid-2000s, had the tail wind of 4 or 5 per cent inflation, which increased revenue and which is not present now. "The scenario is not going to be repeated, that is Government bouncing off a balanced budget into rapidly escalating surpluses.

"It will have to be fairly careful management to ensure that there are surpluses when the tax take is growing at a much lower rate than used to be the case."

Labour finance spokesman Grant Robertson said Mr English was softening up the public for a deficit for the current year, 2015-2016, when half-yearly Treasury forecasts are released next Tuesday.

The May Budget forecast a minuscule surplus for the current year of $176 million but then rapidly expanding surpluses climbing to $3.2 billion in the 2019 year.

Mr English was speaking at the finance and expenditure select committee and when asked by Mr Robertson if the 2014-15 surplus was a one-off, he said no but "the direction of travel" was as important as the actual operating balance, plus or minus $1 billion.

He also said that the forecasts of billion-dollar surpluses were about a year out.

That suggests that next week's forecasts will revise the Budget forecasts for the current year ended June 2016 to a deficit (compared with the $176 million surplus); a small surplus in the year ended June 2017 (compared to the Budget forecast of $1.47 billion surplus); and the start of a billion-plus surpluses from the year ending June 2018 ($1.99 billion surplus in the Budget).

After years of aiming for a surplus in 2014-15, Mr English achieved it when the books for the last financial year were finalised in October, although forecasts closer to the date, including in the May Budget, suggested he would not achieve it.

Mr English said there was pressure on Government spending with around 2 per cent population growth, high for a developed economy.

Mr Robertson later said the economy was drifting.