Returning the Government's books to surplus has become a symbol of economic management and credibility.

That is due in no small part to Bill English's adoption of the target in the past year as some kind of fiscal El Dorado.

Gone is the phrase that punctuated his early years as Finance Minister, that National was taking the sharp edges off the recession.

Now it's the surplus in 2014-15. He says it repeatedly in speeches, interviews, answers to questions in Parliament and probably in his sleep.


You can bet the farm on him making more fuss about it on Thursday when he delivers his fourth Budget.

It plays well to the electorate which has largely lost its appetite for debt and to lenders and investors who want to see that a Government has things under control.

"You don't want any doubt in anyone's mind that you are heading back to zero and that you are tightening up your spending," English told the Herald this year.

"With the huge public market for fiscal control, the surplus figure became during the campaign the symbol of responsibility."

That is undoubtedly the reason why Labour adopted the same target in last year's election campaign.

While Labour saw private debt as much more of a problem than Government debt, it also recognised that the voter had a general aversion to debt and wanted to get it down.

Labour Finance spokesman David Parker now says it should be "easy" to get back into surplus by 2014/15, playing down the potential heroics of National achieving it.

The debate is not the return to surplus but how quickly to reduce the Government's borrowings that have stimulated the economy throughout the downturn without precipitating another downturn.


For credit ratings agency Standard & Poor's, showing a clear path to return to surplus is the most important thing, not whether it's next year or the year after. "If the return to surplus is delayed by a year," S&P sovereign ratings analyst Kyran Curry told the Weekend Herald , "it's not going to so much add undue pressure [to the rating], everything else being equal.

"For us it's about returning the surplus as conditions allow and not be hell-bent on returning the balance to surplus just for the sake of it.

"It's really about sensibly withdrawing the fiscal stimulus and not providing too much of a drag on growth in the process."

Curry said in New Zealand's case, as with Australia's, the sooner it stabilised its fiscal position as conditions allowed, the better.

"It's all about restoring the significant flexibility and the significant options the New Zealand Government had pre-2009/10 to respond as it needed to."

The 2014/15 year hasn't always been the target date for National's fiscal nirvana. The word "surplus" barely featured in the vocabulary of English's first Budget in 2009.

It forecast deficits for nine years, and projected the next meaningful surplus to be in the 2018/19 financial year.

By the time of English's second Budget in May 2010, the projection had been brought forward by three years - the Government would get back to surplus in 2015/16.

Six months later he changed the language again, saying New Zealand would be back in surplus "no later" than 2015/16.

The first indication that the goal posts would be brought forward to 2014/15 was in January 2011 in Prime Minister John Key's first speech.

Key flirted with the idea of achieving surplus even earlier.

That was until English returned from a sobering meeting of the IMF in Washington that had fallen into a collective state of depression over Europe's inability to grapple with the debt crisis and talked reality to the Prime Minister.

A few months ago English described the anxieties of watching Europe "like watching a band of your own teenagers walking along the edge of a cliff. They're on the path but at any moment, they could be really stupid and fall off", he said.

The description is probably even more apt now as events in Europe put everyone on edge.

Both English and Parker have a get-out-of-surplus caveat if there is a meltdown in Europe.

"If the world went into recession obviously all bets would be off," said Parker "but the world isn't going into recession." He also believes that National exaggerates the role of others' woes on New Zealand's woes.

New Zealand's structural problems were laid bare by the global financial crisis but they are not caused by it. While it was necessary to get back into surplus "that in itself should not give you a pass mark".

"The narratives at play here are the Government trying to say it's about the fiscal deficit and we're trying to say it's about the economic deficit, including our external balance."

Kyran Curry is also concerned about a deterioration in Europe.

"What we, S&P as a franchise, have learned since 2009 and 10 is that despite the deepening inter-regional trade in the Asia Pacific region which has been strongly supportive of Australian growth and New Zealand growth too, it can't go on for extended periods without a stronger Europe and a much stronger US.

"The Asia Pacific region is the engine of growth globally at the moment and it can't go on without a stronger Europe," he said.

"There is a risk that if the recovery in Europe is more protracted and further delayed then that casts a pall over the economic outlook for this region and as a corollary of that the outlook for New Zealand and Australia."

Australia is two years ahead of New Zealand in terms of delivering a surplus, although Curry said it had involved a lot of "accounting tricks" where the timing of spending shifted and revenues were brought forward.

Former Prime Minister John Howard said it was "a political necessity more than it was an economic necessity" for Labour to deliver a surplus.

Treasurer Wayne Swan announced in his May 8 Budget that there would be A$1.5 billion ($1.94 billion) surplus in the coming year after five years of deficits, the current one being $44 billion.

The difference with the New Zealand surplus is that unless there is an early election in Australia, the voters will know if it has been achieved.

Swan's surplus is for the July 2012 to June 2013 year, and with the financial statements to be finalised in September next year, shortly before the next Australian general election is due, voters won't know if the target has been met.

Whether National's surplus goal is actually achieved won't be known until September 2015, after the next election and possibly nine months into another Government's term.

Voters in the 2014 general election should have a good idea if National is on target, but they won't actually know.

English continues to describe getting into surplus in 2014/ 15 as "a challenge".

He reinforced that in late April when he revealed that in preliminary Treasury forecasts for the Budget, the job of getting back to surplus had become $1 billion harder since the last published forecasts in February's budget policy statement.

Back then, a $370 million surplus was forecast for 2014/15. A few weeks ago, English said, the preliminary Budget forecasts had turned that into a $640 million forecast deficit.

By next Thursday, adjustments will have been made to ensure the forecast is firmly on track for 2014/15.