By Bernard Hickey
Finance Minister Bill English has warned that a NZ$100 million hit to oil royalties because of the oil price slump and lower taxes on bank term deposits was putting pressure on the Government's plan to return the Budget to surplus in the current 2014/15 year.
English was very cautious about repeating his previous assurances that an OBEGAL (Operating Balance Excluding Gains and Losses) surplus would be recorded by the time the accounts are finalised in October. The pressure on the Government's flagship surplus promise was thought to have eased after Treasury reported on March 11 a NZ$77 million OBEGAL surplus in the seven months to January.
English pointed reporters in Parliament to inflation being lower than expected in the last six months pressuring the Government's books.
"It's great for households and good for business and helps for the conditions for investment, but it's a bit of a challenge for the Government's books," he said.
"There's certainly pressure on the surplus. We've got about NZ$100 million less in oil royalties and tax. Discount rates on our liabilities are lower," he said.
"We get quite a lot less interest income because interest rates are lower than expected. We've got over NZ$100 billion in bank deposits and the interest on that very large amount of money is lower than expected, so yes it does put pressure on the surplus."
Asked if he remained confident that the Government would achieve its long-targeted OBEGAL surplus in 2014/15 by the time the year's accounts were finalised in October, he said: "You'll just have to wait and see. The Treasury is going through a forecasting round right now and I wouldn't want to get ahead of that."
'No need for PTA change'
Asked about growing calls for either lower interest rates or a lower inflation target for the Reserve Bank in its Policy Targets Agreement with him, English said the outlook depended on "whether you think zero inflation is permanent or temporary, and it's a bit hard to tell right now."
"It's lower than expected six months ago and that's going to have an impact on the Government's books because the tax base isn't growing pushed by inflation. It's growing purely on the base of real GDP," English said.
"The question of whether it's permanent or temporary: that's the exactly challenge the Reserve Bank Governor has got. If he started to think it was permanent, that might affect his interest rate decisions. So far the RB's view appears to be that while inflation is quite low now, it will probably come up again," he said.
Asked about BNZ's call for a lower inflation target to avoid rate cuts that might overheat the economy, he said: "I don't think there's a need to look at the policy structure. That's a bit of a distraction from the core issue, which is whether you think zero inflation is going to be around for two to three years or five years, or for the next six months."
English also rejected Winston Peters' comments about the high New Zealand dollar hurting the regions, saying he had not heard that raised by Northlanders when he visited during the campaign.
No chart with that title exists.
8 Comments
So English rejects an OCR cut ?
This man is losing touch with those us who voted to put him in office
I guess he could argue its not his job to set the OCR , but does he not realise our interest rates are simply too high making us too expensive by just about any measure ?
Its cheaper to fly and take a holiday in Australia than in Queenstown or even drive down to Rotorua for a weekend
We are effectively at PARITY with the Aussie $
How much stronger does he want the Kiwi$ to be ?
This is the closest thing to self -destructive behaviuor on the part of Mr English one could find
How on earth does he think we can compete with Australia , and how long does he think we can keep up this ruse ?
The cost of lliving here is ajoke when compared to Aus
Petrol in some parts of Australia is 99 cents per litre after adjusting for GST
We are paying close to $2,00 per litre inclusive of GST in some places
Fresh milk is $1 a ltire in Australia in Woolworths
Our fresh milk is the better par of 50% to 75% more expensive. Why , when its a basic commodity that cannot be diifferentiated ?
Econonomy 101.......point 1
Simple English.
When you force interest rates down, till it hurts, the income goes down on all deposits.DUH.
Oil Royalties are nothing one can rely on, going forwards, just like all commodities, if the 99% cannot afford it, it will retreat. DUH.
When expecting a different result, do not just keep your fingers crossed, do what the poor savers did..stop damn well spending and cut all snouts in the trough, till it hurts.
Join the real world economy, join the dots....cross the T's and get with the damn program.
Not savers, but the saved, big difference. The saved are also usually OAPs and not great consumers. Meanwhile if the saved dont think they are getting an adequate return, tehy are free to move their money to where they can get what they think they deserve, simple really.
The saved are those that are "Too Big To Fail" - the rest can eat cake.
There was no credible effort to analyze and grasp the root causes of the 2008 financial and economic crisis. The Bernanke Fed and the Treasury moved immediately to flood the system with liquidity, backstop troubled borrowers and reflate system Credit. It’s been rationalization and justification – not to mention monetization - ever since. Inflating risk asset prices was the cornerstone of Bernanke’s reflationary strategy. Rates were collapsed to zero, providing a competitive advantage to marketable securities (at the expense of savings) (my emphasis). The Fed quickly purchased $1.0 TN of Treasury and MBS securities. The Fed and Treasury backstopped and bailed out key players in the “shadows.” Too Big To Fail.
The Federal Reserve has been determined to paint the 2008 crisis as a consequence of poor lending standards. Excessively loose monetary policy has been absolved of responsibility. And distorted financial market incentives apparently were not culprits either. Read more
Point me to elements of the NZ securities market that can lap up ~49% of NZ bank funding, not already owned by our foreign creditors, financing the current A/C deficit.
It would seem the Ph.D. standard cannot fail to keep giving. Fabricated money always finds a security to buy, no matter how rich the price.
Eventually, analysts who keep forecasting an end to the bond market’s bull run will be correct. For now, they’re still wrong.
Just when it seemed bond yields that averaged 1.6 percent at year-end couldn’t get any lower, Mario Draghi and the European Central Bank flooded the market with cheap cash. That pushed yields in Bank of America Merrill Lynch’s Global Broad Market Index to 1.39 percent on Monday, within 0.06 percentage point of the record low reached in January.
Even as the Federal Reserve prepares to raise interest rates from near zero, the ECB’s trillion-euro bond-buying plan is pushing investors to accept negative yields on more than $1.9 trillion of sovereign debt worldwide. Fixed-income assets from government debt to corporate bonds are poised for gains of 1.8 percent in the first three months of 2015, a seventh straight quarterly gain that has defied analysts at firms from Pacific Investment Management Co. to JPMorgan Chase & Co.
“The effect of those low rates in Europe and quantitative easing has had a gravitational pull on yields,” Tim Anderson, chief fixed-income officer at RiverFront Investment Group LLC, which oversees $5 billion in assets, said in a telephone interview. “Ultimately gains will get smaller, and at some point of time the risk-reward isn’t that attractive but that is not being seen right now.” Read more
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.