New half-yearly forecasts by Treasury have seen the $176 million surplus forecast for the current financial year turn into a $401 million forecast deficit, but Finance Minister Bill English says he won't make any spending changes to try and maintain a surplus.
"It's not disappointing; it's just another Treasury forecast,"
Treasury's now forecasts a small surplus the 2016-17 year, building to one near $1 billion in 2017-18 and a plump one in 2018-19 of $3.4 billion.
But the deficit is so small relative to GDP (0.2 per cent) the Government's accounts are considered by Treasury and Finance Minister Bill English to be largely in balance and in good order.
And English told reporters today that he would not be making any changes in order to try to get the books into surplus.
"We don't intend to alter our spending plans in response to small positive or negative Obegal balances." As the 2014 -15 result showed, things could change quickly. This time last year, Treasury was forecasting a $572 million deficit, and it turned out to be around a $400 million surplus.
He said that while there had been a "mild deterioration" in forecasts, New Zealand was doing pretty well by international standards.
English foreshadowed changes to the operating balance last week in the wake of softening global conditions including lower dairy prices and slower growth in China.
Growth forecasts have been revised from the Budget forecasts from 3.1 per cent in the current year and 2.8 per cent for the following two years to 2.1 per cent in the current year to 2.4 per cent and 3.6 per cent.
Overall growth is forecast to average 2.7 per cent over five years.
The Government's target of reducing net debt to 20 per cent of GDP by 2020 looks less achievable - the new forecasts put it at 21.9 per cent in 2020 - 21.
But English said he wanted to see another round of forecasts before making any decisions about it.
But he has given greater emphasis in his fiscal priorities on reducing debt and to reducing debt within the medium term (up to 10 years) to within a range of zero to 20 per cent.
English confirmed that a new operating spending allowance of $1 billion was budgeted for Budget 2016, $2.5 billion for Budget 2017 and $1.5 billion for 2018 and 2019.
But he said "rephasing" of the allowances was possible to meet particular spending priorities, meaning more could be spent next year if required.
He also announced that a new $1 billion capital spending allowance had been built into next year's Budget, now that the $4.7 billion proceeds from partial asset sales had been allocated.
He said that $11.5 billion would be spent on capital projects over the next two years, $4 billion more than over the past two years.
Of the $11.5 billion capital spend, $2.6 billion would be spent on transport; $1.7 billion in Canterbury; $1.4 billion on other school spending; $1 billion on Defence and around $400 million on the next phase of the ultra-fast broadband roll-out.