Finance Minister Bill English says returning to surplus 'challenging' with dairy prices falling and inflation low

Finance Minister Bill English says returning to surplus 'challenging' with dairy prices falling and inflation low

Finance Minister Bill English says returning the government books to surplus this year will be "challenging" against a backdrop of falling dairy prices and low inflation.

Speaking to an ASB business breakfast in Auckland, English said the Government’s annual Budget Policy Statement, which will be issued on 16 December along with Treasury’s Half-Year Economic and Fiscal Update, is being put together in "unusual times" for global economies.

“Falls in global commodity prices such as oil, forestry and dairy, together with weak international consumer price inflation, are posing challenges for governments and central banks around the world,” Mr English said. “New Zealand is not immune to these global trends," English said.

“This combination of lower commodity prices and low inflation means that the nominal or dollar value of New Zealand’s economic output will not grow as fast as previously expected. This will affect farm and company incomes and we expect this to flow into the Government’s books through lower revenue."

On the other side of the coin English said the current economic outlook was positive for households.

"Low global inflation, a strong dollar and more jobs mean we are not seeing the cost of living increases that would usually go with the kind of real economic growth we’re experiencing right now. This means New Zealanders have more spending power as, on average, their incomes are rising a bit faster than the cost of living. Low inflation also means there is less pressure on the Reserve Bank to raise interest rates.”

The Government remained focused on controlling its spending and returning to surplus this year, as well as reducing net debt to below 20% of GDP by 2020.

"The Treasury’s best assessment of the latest data and the impact on government revenue will be included in the Half-Year Update next month. The unusual current combination of economic circumstances is likely to have an impact on these updated forecasts,” Mr English said. “As we’ve said all along, returning to surplus this year will be a challenge," English said.

“But we believe the strength of the economy and constrained government spending can deliver a surplus when the final accounts are published late next year."

“The overall trend in the Government’s accounts is positive. The OBEGAL (operating balance before gains and losses) balance has improved from a deficit of 9.2% of GDP in 2011 to a deficit of just over 1% of GDP in 2014, and we’re on track to reduce net debt to below 20% of GDP," English said.

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?

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.


Comment Filter

Highlight new comments in the last hr(s).

The bad news is being broken slowly now the election is behind us. 
Not that anything much has changed - that there wouldn't be a surplus was clear enough to any reasonably astute observer from before the election campaign.

They knew they were never going to make it...
Just another worthless Key promise that he can seemingly break with impunity!  What about the Pike River promise, the Christchurch Earthquake promise (no one will be worse off) etc. etc...
The fact is that with tens of billions of insurance stimulus, a bunch of monkeys could have had the economy in good shape.  It's pretty embarrassing that these buffoons are still running a deficit now and have over the past while had the audacity to blame the earthquake for that!
Let's review Christchurch earthquake spending and political actions:
For starters CERA staffers were obviously employed on the merits of their underwear rather than any financial acumen because look at the billions wasted directly by them, and by others in the government (who could have taken CERA advice had they provided some):
1. EQC failing to properly inspect damage leaving many thousands of homes undercap for years cost not only the homeowners but also the country by not getting the full insurance entitlements from the private insurers.  In addition leaving hapless homeowners to fight intransigent insurance companies on their own, all up probably cost several billion in reduced insurance payouts - which also means much of that money was taken in cash instead of used to rebuild as the payouts were insufficient - hence reduced domestic spending and tax paid.
2. CERA deciding to bulldoze undamaged red zone houses instead of coming up with solutions for relocation or interim reuse.  Billions of dollars of government money burnt!
3. CERA/CCDU deciding to acquire CBD land and embark on their megastructures projects!  Not only billions of direct government money wasted but many hundreds of millions of investment capital fled inretaliation!
All up, just an embarrassment.
And all the while, the govenment can't even provide housing for its citizens, yet invites hordes to  settle here, depriving housing from those whose families built and defended this country...
Why do people think they are doing a good job?  The only job the Nats seem good at is spin...

It was only sleight of hand and off balance sheet actions that ever invented the surplus even if the dairy and log prices held up.
Chances are now there will be a big dump for 14/15 so thay can invent a surplus at the end of the next election year.

what about the no tax increases promise?  Shortly followed by a rise in GST.

Why are we talking about broken promises?
How are they different to lies?

Dead right.  Key is nothing but a liar with no moral compas. The really sad thing however is that our citizen voted him in last time with an increased majority.  That says more about us than him.  There will always be lying little creeps lke Key trying it on, but one would have hoped that a half decent society would see through him.  Then again look how long Burlesconi hung on to power in Italy.

The notion that the falconer should be heeded has been lost. There are no limits on greed, power, exploitation, fraud, misrepresentation, manipulation of markets or the issuance of lies to further a con, pass legislation or boost the value of a security.
Today, from:
Describes well where we are at.

Feels a bit like the fall of the Roman empire.  Who will be the invading hords?  ISIS et al.  God help us.  The only way out our mess that I can see is a powerful overhaul of our culture and moral values.

You are correct about that overhaul but it is not going to be initiated from the top.

They got in because the opponents were even worse.

Even before!

English is in Moa land again.
"This means New Zealanders have more spending power as, on average, their incomes are rising a bit faster than the cost of living."
I assume 'cost of living' no longer includes a roof over you head, because the cost of those is rising a shed load faster than incomes.  More than offsetting the 'bit' lower cost of imported goods.

Yes and no.  BE is full of crap IMHO in terms of pay rises, sure some ppl may well be seeing nice fat pay rises, pulling up the average but most people?
The average is 1.6% pretty close to CPI, bugger all difference, so more spending power? yeah right.
and that wage trend is down, inflation? not from wages that is for sure.
"cost of living' 2 things, no a house buy is an investment and a one off.  oh and rents are doing what?
about 3% in most of NZ,
Not sure if that is net of inflation or not, but not a "shed load" unless you have a midgets shed? as it looks more like about +1.5% net ie 3%-CPI)
Also once you have a house the cost of owning it does not increase unless the OCR rises.  On top of that if rent is pretty much equal to the resulting mortgage then there is no rise really.

Where in Auckland can i buy a house where the mortgage payment (with 20% deposit) is the same as equivalent rent?

Anyone seen the huge $100 million blowout for IT for Auckland city .

Easy peasy. Remember Novopay and the big Police (I think it was them) development that got canned when it got out of control.
My experience is limited to 1965 until 1984 so it probably much the same now -only bigger. For those who have worked in IT know.
1. The specifiers don't know enough to decide what they want
2. The IT people let through extras  and cannot control the customer's desires rather than needs.
3. The main contractor doesn't give a ....... They get paid anyway.
Liken it to building a simple 3 bedroom house on a flat site.  Then gradually tell the builder you want it to be a Mcmansion with every imaginable convenience. On the way be prepared to knock down walls and shift services around. There you have it but who pays? Just raise the mortgage a bit more.

What's so special about Super-City's IT requirements?
Like, there must be at least a million city-councils and local-councils around the world all basically doing the same thing. Surely.
The only special need that might be unique would be tracking all the consenting and developer contributions procedures, but hey, all councils around new zealand have the same need. Why dont they just collaborate and share the cost. Heck, it's not new, and it's not rocket science.

As soon as they decided the existing councils systems were insufficient and they needed a whole new system, that should have set off alarm bells!  Really, Auckland City Councils systems could run auckland city, but are incapable of running the enlarged city?

We used to work with these clowns.  They always want something different and the head honcho always thinks "the big picture" and things will be different this time.  they throw a bunch of extra requirements on the table, because they want the info, then pull half the funding to put towards their next big thing,  Usually they have zero concept of time and distance (they're not engineer thinkers)  and expecting everything to be like their newest car or suit.

Doesn't help of course, that it's in a supply company and their salespeople to pander to this behaviour as best as they can.

No-one wants to know that by dropping 20% of the redundant data yuo can shave 50% of the data requirements and 70% of cost of operation and installation !
 Remember just like the wellington project - spending more money "creates jobs" and "makes citzines wealthy" huzzah.  So as long as the bank will give you the money at super cheap rates, who cares if you haven't finished the pay back period for the system two evolutions ago.  It's the age of Win8.1 and RFID and smartphones, and Guppy designed webpages - kiosks and wifi on every corner.   time to get rid of those old LED monitors and thin terminals, we're in the Clouds now !

- -
The real difficulty comes from the upbringing that the top and bottom have.  They come from families where money problems weren't a real thing,  there was always enough "if you just want it enough".  So the realisation that there is a real cost to the funding, escapes them.  and of course, they are also meeting demands from government and demanding ratepayers who have similar lack of understanding, that councils "should" provide services.  money?  no services, they should supply services,  that's what the council and government are for, if there's a money problem, then it must be a person problem stopping things - get rid of the person and see we have access to lots of money.  Just find new taxes and rates and stuff if your budget isn't working.

Computers are cheap, it is idiots that are expensive.
When you amalgamate to supposedly save money, it is imperative that it works.
When playing with other peoples ratepayer money and overpaid at that, it is easy to get carried away and say screw the public, "let's go for broke" .
Reminds me of the "Solid Energy" mandate from the present leadership. They were told to go for broke and somehow managed it quite nicely. Unfortunately?.!!
Otherwise that would have been sold off to pay for their largesse, along with al the other previously state owned enterprises, we all collectively owned, supposedly for ever and a day.
And who made record profits, I seem to recall.
But what do I know...I only have a short term memory, but a couple of years ago, is hard to forget the wasteful policies of our Lords and Masters.

easy, you get a government sanctified mandate and you just start stuff other peoples' money in yours and your mates pockets as fast as you can.

The beauty is, after a couple of years they'll rip it all out and start again, so it's not like you even have to get it working effectively.

December the 16th I believe we can expect a reduction in the projections for growth.  That with inflation at 1% and fuel prices dropping, it looks like OCR cut by Wheeler in the new year is going to be the only option of stopping the wheels falling off.

fuel prices aren't going to make a significant drop.  The financial, duties and that the companies involved will want to recover their expenses from wearing previous lifts in costs.  That includes any loses from fuel reserves that have been brought recently/

Stop worrying..we got the best finance minister in the OECD!! John said so!
Just cos the tail winds of the last 5-6 years have turned into a bit of a twister at the moment is no cause for alarm. The cap'n and his mate have their hands on it...our cash! 

There is nothing special or sacred about a balanced budget as far as NZ is concerned. It is a purely operational matter whether we run a small surplus or a small deficit. The deficit or surplus is to budget matters as the interest rate is to the RBNZ. It is important but running a surplus can be good or bad depending on the situation. Personally I'd rather Bill ran a defict to keep inflation up and let the RBNZ put interest rates up a bit to compensate. Just cut taxes a bit.
The danger in the present policy of aiming for a surplus as if it is a worthy objective is that it will cause inflation to be too low and thus interest rates to be too low. We all know where that leads - a massive rise in household debt. Really, really stupid.