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Govt sticks to surplus track despite latest projections showing NZ$1 bln deterioration in 2014/15 balance from NZ$370 mln surplus to NZ$640 mln deficit

Posted in News Updated
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It will be an achievement if the government can get its books "near surplus" in 2014/15 after a billion dollar deterioration in the government's forecast financial position in just two months, Finance Minister Bill English says.

A 2014/15 surplus of NZ$370 million picked in February is now projected to be a NZ$640 million deficit, English said in a speech to the Wellington Employers' Chamber of Commerce on Thursday afternoon.

Despite the new forecasts, English said the government was still committed to reaching an operating surplus before investment gains and losses in the 2014/15 year. This would be a significant challenge and require tight control over spending over the next three years, he said.

The government made a big pitch during last year's election campaign on getting its finances back into the black in 2014/15. However, deteriorating global economic conditions, and a lower than expected domestic tax take have seen it constantly revise down its surplus forecasts and future spending committments in order to show the figures reaching that target.

Prime Minister John Key even said on the election trail in October last year the government was still trying to reach surplus a year earlier - 2013/14.

February's Budget Policy Statement had picked a surplus of NZ$370 million in the 2014/15 year. That itself was down from a NZ$1.45 billion surplus picked in October's pre-election forecasts.

The latest set of projections from Treasury follow Prime Minister John Key announcing earlier this month that English would be running another 'zero' Budget in May, cutting back a planned NZ$800 million operating spending increase.

In January, Key warned the government may have to forego the 2014/15 surplus track if global conditions worsened to such as point that austerity measures needed here for reaching the target led to a "sharp contraction" in demand in the economy.

See English's comments below:

Budget 2012 will set out balanced decisions to ensure the Government remains on track to surplus in 2014/15, Finance Minister Bill English confirmed today.

In particular, it will address a $1 billion deterioration in the forecast operating balance before gains and losses in 2014/15 between the Budget Policy Statement in February and preliminary Budget estimates.

“It’s important that we return to surplus because New Zealand is one of the most indebted countries in the world as measured by our net international investment position,” Mr English told the Wellington Employers’ Chamber of Commerce today.

“We need to start rebuilding a buffer for when the next global crisis comes along. Surpluses give us choices we simply don’t have while we’re running deficits.”

Returning to surplus by 2014/15 is a significant challenge, requiring tight control over spending for the foreseeable future, Mr English said.

“The scale of the challenge was again highlighted in preliminary Budget estimates ministers received in recent weeks.

“They revealed a $1 billion deterioration in preliminary forecasts of the operating balance before gains and losses in 2014/15, compared to the Budget Policy Statement in February. In other words, the preliminary Budget estimates showed a $640 million deficit in 2014/15, compared to the $370 million surplus predicted in the BPS.”

This reflected a number of factors, such as the impact of lower global growth on short-term, New Zealand growth forecasts. This in turn flowed into lower government revenue expectations.

In addition, New Zealand Superannuation Fund revenue and State Owned Enterprises profits had been revised downwards, and finance costs and earthquake costs were revised upwards.

“But ministers remain focused on staying on track to surplus in 2014/15 for all the reasons I’ve outlined,” Mr English said. “They are making decisions to achieve that. As a country, we can’t afford to spend money we don’t have.”

These decisions include:

  • Running what will be very close to a zero Budget, meaning little new net government spending in this Budget out to 2014/15.
  • Continuing to reprioritise existing spending into higher priority areas to ensure better public services.
  • Considering the appropriate level of future operating allowances, while ensuring we can deliver better services.
  • Continuing with revenue-enhancing measures signalled in Budget 2011such as fairer tax treatment of employee benefits, new rules for mixed-use assets such as holiday homes, and a new approach for livestock valuation.
  • Proceeding with $1 billion of public sector savings over the next three years, as announced in Budget 2011 to ensure chief executives had time to plan. Those savings begin on 1 July this year.

The Budget will also propose changes in the Public Finance Act so there are more checks and balances on ministers’ spending decisions and their long-term effects.

This includes a proposed spending limit to restrict spending increases to population growth and inflation, as set out in the National-ACT confidence and supply agreement.

“So you can see that this Government is serious about getting back to surplus by 2014/15,” Mr English said.

“But I want to stress that while we’re making some challenging decisions to get back to surplus, we will continue with the same balanced approach we’ve adopted for the previous three Budgets.

“We’re keeping up entitlements to welfare and superannuation, and continuing with large programmes like Working for Families and interest-free student loans. We will invest more in health and education. We promised New Zealanders we would do that.

“We’re investing money up front to support New Zealanders out of welfare. We’re also remaining strong on law and order and demanding better, more innovative, public services. This Government has a strong track record in these areas.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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42 Comments

Budget 2012 will set out

Budget 2012 will set out balanced decisions to ensure the Government remains on track to surplus in 2014/15, Finance Minister Bill English confirmed today.
 
If "remains on track"  is as good as it gets, what's it like when the buffers are straight ahead, as they inevitably are?
 
The whole business of National and Labour proclaiming surpluses by 2014/15 in the run up to the 2011 election was a shameful hoax pulled on the electorate to avoid discussion of material growth pledges . If this shambles had been disallowed, we could have had the possibility of holding at least one party to account in the absence of credible lies.  

Bill's track has a few sets

Bill's track has a few sets of points and diversions that he has not got any control over.
Perhaps he failed to notice that turn from the Main Trunk to that East Coast one ( the one with the washout)

changed his mind, he's going

changed his mind, he's going to slash.
>>>
Finance Minister Bill English has further tightened the screws on the Government's finances, signalling cuts to future new spending provisions to help bring the Budget back into surplus.
 
http://www.stuff.co.nz/national/politics/6811021/English-signals-further...

today

today

They couldn't pay me enough

They couldn't pay me enough to do that man's job.

Well here's a very easy

Well here's a very easy option to help balance the books - increase the age at which superan. can be claimed by a couple of years (at least). The UK has done it, most of Europe has done it, and it can be phased in gradually to not provoke too many vested interests (those in the process of retiring).
Oh wait we cant do that can we..........
Interest free student loans, superan at 65 and universal WFF - they are all going to have to go eventually, why not make a start now?

Because the PM likes making

Because the PM likes making populist promises andyh.
If I remember rightly it was the PM who kept on saying the govt could return to surplus a year earlier than the previous 2015/16 track, hence Treasury came up with the 2014/15 one. Looks like that'll be haunting him too.

Doesn't do much for

Doesn't do much for Treasury's credibility either.

Populist promises are all

Populist promises are all very well.  But if the situation as seen by Treasury (long after every one else) has deteriorated, surely they should be reconsidered? 
 
There are a few sacred cows that you mention that should be led to the slaughter.  In particular, the recent 5% increase in WFF looks increasingly loopy.
 
From my viewpoint, Key is looking more like Muldoon every day.  Including in his attitude to the media & those who dare to question him.
 

Cutting taxes was a massive

Cutting taxes was a massive mistake.
The longer this goes on, the longer Treasury forecasts are wide of the mark, the more stupid these clowns look
Of course totally predictable, and predicted by me and others on this website
 

"the PM likes making populist

"the PM likes making populist promises"
HA HA HA - name one who didn't or doesn't.  Churchill promised them blood sweat and tears, proceeded to steer western democracy to safety - his reward?
They voted him out as soon as it was over.

Ah well, a full blown

Ah well, a full blown depression is on the cards if this government keeps up their insane idea of "balancing the books" when the economy remains in a deleveraging and demand reduced state.
It is just ideological stupidity piled on top of ideological stupidity.

Totaly, borrow more, and

Totaly, borrow more, and more, thats ideological intelligence.  Govt should be increasing spending, especially on non essential services and lowering the tax rates.  There is no way out of this mess other then a depression, by all means extend and pretend for as long as possible.  When the music stops, everyone is left standing.  GG

Government at least shouldn't

Government at least shouldn't be reducing spending in the short to medium term to make up for the private sector shortfall -- one of the basic lessons from Keynes (as in from the 1936 General Theory not the neoclassical misinterpreation of Keynes that is).  And best if directly to us or on infrastructure not to corporate welfare or top end tax cuts (which never were fiscally neutral).  Along with a debt jubilee of the sort that Keen talks about. 
Or we could just go the austerity and suffer forever route ....
 

I posted a link earlier

I posted a link earlier showing how bad the UK was doing due to austerity, worse than the 1930s........
The problem with Keynes otherwise great theory is that it assumes a) You should have saved in the good times for the bad...but critically, b) cheap and plentiful energy that allows you to can kick.....so your recovery to the old growth path pays for the spending you did to cover for private drop....
We dont have any more energy supply growth....therefore I dont believe the theory will work...
regards

This may come as a surprise

This may come as a surprise but relatively speaking NZ did save during the good times, but also increased obligations in the foolish belief that the good times would go on forever.  We should be switching away from fossil fuels, but it seems there are too many morons out there who think oil is some kind of infinite magical resource that can just be extracted forever.  Not to mention in denial that all the pollution we are creating is having an effect on our own habitat.  I laugh at the willful ignorance.

Video in there now of media

Video in there now of media stand-up with English after the speech.
Cheers
Alex

Billy Bob said "we think it's

Billy Bob said "we think it's important we should reflect the public mood, ahh stop growing our over-draught and stop growing our debt, we're determined to do that."
 Well Billy Bob..it just so happens the public mood for not selling SOE's to  achieve the goal you mention is of greater importance to the public as a mood goes .....demonstrating a selective response to a public concern that may lend justification to the sale of SOE's, which are currently the publics main concern.
 And that is the unwinding of spin......Thank you Billy Bob ...bet you thought we'd never catch on.!! 

goes to show how short the

goes to show how short the attention-span of the peasants is .. the intention to sell the SOE's has been in the public domain for a year now .. and not so long ago your leader stood on his mount and waved a teapot .. and they voted accordingly  ... save the teapot ... more important

agree regards

agree
regards

If only we had more

If only we had more earthquakes eh.  We would be the richest country in the world.

Be careful what you wish for

Be careful what you wish for Skudiv

The interest-free nature of

The interest-free nature of student loans is safe....yahoooooooo!

What a surprise, didn't see

What a surprise, didn't see that coming.
 

What a friggin joke, a

What a friggin joke, a farce.
If we had a halfway decent opposition the Nats would be toast
but no doubt they will keep extending and pretending
 
 

Thats right 9% deficit last

Thats right 9% deficit last year, and no surplus ever again.  There is a spending problem and a revenue problem.  Selling assets isn't going to help the long term outlook for revenue, so about time to cut back on spending (if you are serious about a surplus, wont be the first broken election promise, only suckers believe them anyway). 
 
"The horse is already boleted, and he's talking about building a stronger gate"  Winnie P.

In fairness I think the

In fairness I think the government recognises this, but in reality can't go slashing spending too fast, or the usual chorus will start up. Remember at any point in time the govt is only a couple of seats away from having the coalition of losers cobble together, and god knows what they'd do given the chance to put together a budget.

Yep, it makes me laugh.  The

Yep, it makes me laugh.  The reason govts go bankrupt is because there is no other option.  This is what we want, and this is what we get.  I just wish they would hurry up about it, this is getting tedious.

slashing spending too fast?

slashing spending too fast? how would they hand out government contracts to their cronies when they do that?

I'd slash any department that doesn't deal with core public services in health, justice, defence and infrastructure and I'd slash entitlements to anyone who can afford them
this government are just a few seats away from becoming a coalition of losers themselves although with Banks on their side one could infer that already.

 how would they hand out

 how would they hand out government contracts to their cronies when they do that?
I believe the politispeak  vanacular for that, is known as Outsourcing...dollar_ bill.
See we're saving words already..!

yeah - outsource the ministry

yeah - outsource the ministry of tourism err ahh to the tourism industry - throw in the minister for free ditto for any ministry involved with picking winners and toadying to business interests and minority social groups

Matt in Auckland - you have

Matt in Auckland - you have got to be joking right? If you think Labour would be a better option you are seriously deluded. Labour in my humble opinion f$&'d up 10 years of perfect economic conditions by creating one all mighty lolly scramble. National had nothing to play with. Key and English deserve goddam medals.

I don't think either National

I don't think either National or Labour are an option for the future.
Both are BIG government idealists. Libertarians have it right in this regard however they take the ideal of SMALL government too far. As usual the answer would lie in the middle somewhere.

A non-partisan science and resource based movement founded on ethics is the only way I see for a peaceful future but I'm starting to squint harder and harder to see past the growing walls of protectionism and Nationalism.

Where in Matt of Auckland's

Where in Matt of Auckland's post did he refer to Labour
He was after a halfway decent opposition.  Doesn't have to be Labour

Kane I am not a die hard

Kane
I am not a die hard Labour follower, although I have voted for them in the past (along with National)
I agree they made some grave errors in their last term
BUT.....the Nats cutting income tax was a mistake, fiscally speaking. Now if they had meaningfully cut spending in areas like WFF, interest free student loans etc. then fiscally speaking it might have been OK 
 

National are doing it dead

National are doing it dead right. They have been borrowing to keep the wheels turning. In doing so they have taken on debt, and moved risk from the private sector to the Crown. Selling SOE goes some way to rebalancing this by transferring risk back to the private sector. This is exactly what nz needs. I don't see any other political party with the intestinal fortitude or intellect to negotiate the economic climate we are currently faced with. The other parties are populist and frankly scary. JK has maintained his margin purely because thank god a fair whack of Kiwis have a bit of nous.

I think the interest free

I think the interest free student loans was and still is just a bribe to get the younger voter. They need to remove them out, as we can't afford them. They were introduced during far better times, Phasing out Super is another one that needs phasing out over time, and the age of eligbility raising. I know so many people who are working, getting super, and they are relatively young and healthy people. Not only that they are getting free travel with the gold card. Not saying they don't deserve it, as they have been paying in for years, but the younger generation are also paying in, and they will likely never get it back. 65 years old is no longer old, when we are healthier and live longer.

Interest free student loans

Interest free student loans should be targeted towards creating graduates we require - not a carte blanche handout to anyone who wants to call themselves a learning institution.
Phase out super - not likely but I believe 70 is a likely future target for eligibility.

WFF needs to be seriously cut back to families who actually need it.

Student loans were set up to

Student loans were set up to move money from tax payers to private providers of education. Now most of the money actually went to state providers but still plenty of people got rich on the backs of children.- Student loans for hairdressing, security guards etc- all good jobs but either they do not need that sort of educational training- more apprenticeship or on the job rather than fattening the pockets of so called educators.
If you really believe in the principle of student loans, then bring them in for 5 year olds- after all it is the early years that matter most. So interest should start acruing from the day they start school. Would mean that they owe a lot of money by the time they leave school.
Of course student loans are actually a really stupid idea- very hard for people to see this. Progressive taxation used to be the means by which the cost were paid back by the people who got the benifit of eductation. (bring on the lsis of people who made lots of money without eductation- great- they are the exception- do not make rules just for the except)
Students loans are just another user pays lie which allows governments to hide the fact that their costs are out of control by killing off the economy a cut at a time
We have no need for student loans. They are a fiction created by banking interests who want to put us all in debt and keep us there.
Why would we actually vote to put our own children in debt - is simply does not make any sense.
My views on this have been surprising hard to get across to people- we seem to have been indoctrinated with ideas of debt as the answer to every problem. Pretty pathetic really. We have lost a lot of what made us so good in so few years and without so much as a fight.