Surplus depends on how you do the numbers

By AUDREY YOUNG political editor

Did Finance Minister Michael Cullen post a $4 billion surplus or a $1.3 billion surplus?

That depends whether he used the "Oberac" or the operating balance. Oberac is the acronym for Operating Balance Excluding Revaluations and Accounting Changes.

Former Treasurer Winston Peters said it had been used to confuse people, and National leader Bill English, a former Finance Minister, says Dr Cullen wants to have it both ways.

Since 2001, Dr Cullen has usedthe Oberac as his measure of surplus. In this year's Budget he made a special point of emphasising it.

The Government's liability on the Superannuation Fund and ACC can change hugely with a change in interest rates. For example, when interest rates fall, the return on invested funds drops and the Government's liability increases. When rates rise, that liability decreases.

It is largely a paper revaluation and money does not change hands, but under accrual accounting it must be recorded in the books and can hugely affect the operating balance.

In this week's Budget, when Oberac was used, the surplus was bigger than the operating balance.

Revaluations of the Government Superannuation Fund pension liability increased the Government's liability by $1.505 billion and ACC revaluation by $893 million - in a total revaluation of $2.680 billion.

Without those figures, the operating balance (the Oberac) was $4.041 billion.

But under accrual accounting used by former Finance Ministers Ruth Richardson, Sir William Birch and Mr Peters, they are taking it into account in the operating balance which this year was a slender $1.361 billion.

The Oberac will not always be a bigger figure than the operating balance. If it had been used in the 1999 and 2000 Budgets, for example, it would have been much less than the operating balance. In both years, there were downward adjustments which pushed the operating balance up.

Dr Cullen adopted the Oberac in 2001, explaining in his Budget speech that some valuations were the result of factors beyond Government control.

"It allows the public to get a much more accurate fix on the effectiveness of our financial stewardship without abandoning basic accounting principles."

But critics including Mr Peters attach a more political motive to it.

"It has been used to confuse his own caucus as to why he did not want to spend any money. Having confused them, he has now gone out and maintained the same logic publicly: 'I've got a $4 billion surplus but don't get too carried away because it really may mean something much less'."

Mr English said: "Dr Cullen is trying to have it both ways. He wants to look like he has been a conservative fiscal manager on the one hand, but on the other hand he is determined to tell people he hasn't got any money there."

Mr English said Dr Cullen chose not to use the $1.3 billion operating balance as the surplus figure because he was going to contribute $1.8 billion to the Superannuation Fund.