Finance Minister Bill English has told parliament the widespread drought across the North Island would 'peg back' economic growth this year, but he said the government did not know by how much yet.
English said the drought would make it a 'bit harder' for the government to hit its surplus target for the 2014/15 year, but the government would adjust its finances if necessary to hit that target.
"The longer the drought goes on and the more widespread it becomes, the greater the impact will be. We're beginning to see a decline in milk production, in fact a sharp decline in some areas, and farmers considering slaughtering capital stock, which will result lower production and reduced revenue for farmers," English said in answer to a question from National back-bench MP Mike Sabin.
"This may flow through to a negative effect on GDP compared to our most recent forecasts. However, there are some things that may offset that, such as the increase in prices, particularly for dairy products, and that up until the drought began we had a strong production season for milk production, and production in the South Island will continue to partially offset declines in the north," English said.
"We know that the drought will peg back growth in the economy, but it's not clear by how much," he said.
English was then asked by Sabin how the drought affected the government's plan to return its budget to an operating surplus in the 2014/15 financial year.
"It remains the government's target to return to surplus in 2014/15. There's no doubt though that the drought will have some negative impact and will make that task a bit harder," English said.
"Treasury will be incorporating its view on the impact of the drought in its forecasts as we go into the budget (scheduled for May 16)," he said.
"The government will take that into account in making its spending decisions."
ANZ has forecast the drought could knock 0.5% to 1% off GDP growth this year. See more here in David Hargreaves' article on Interest.co.nz
(Updated with detail, background, link to article on ANZ forecasts)
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