Story image

Weak NZ inflation dims prospects of year-end accounts showing 2015 surplus, English says

10 Apr 15

Finance Minister Bill English says next month's budget forecasts will reflect the weaker track of inflation, which erodes tax revenue and is making it less likely the government will achieve a surplus this year.

The Crown accounts turned to a deficit of $269 million, on an operating balance before gains and losses (Obegal) basis, in the eight months ended Feb. 28, compared to a surplus of $77 million in the seven months through January, the Treasury said today.

The February accounts show goods and services tax came in $261 million below estimate, and while some $150 million of that related to earthquake-related refunds to insurers, "the rest of the GST shortfall is related to very low inflation leading to lower-than-expected spending on consumption."

The Treasury flagged in December that the government's target of a return to surplus in 2015 would be delayed by a year, projecting a Obegal deficit of $572 million for the June 2015 year, turning to a surplus of $565 million in 2016. But English had held out the hope that 2015 could yet deliver a surplus once the final accounts were tallied in October. Today he said that's less likely.

"We're continuing to manage the books carefully but lower inflation, while good for consumers, is making it less likely that the final accounts in October will show a surplus for the whole year," English said. "Next month's Budget will produce new forecasts that I expect will take in to account further reductions in the inflation outlook."

The Reserve Bank last month slashed its forecast for annual inflation in the year ended March 31 to zero, lowered the track for the next two years, and removed the projection for interest rate increases. It now doesn't expect inflation to return to the 2 percent mid point of its 1 percent-to-3 percent target range over its forecast horizon. First-quarter inflation figures are scheduled for release on April 20.

The government eight-month financial statements show core Crown expenses were $312 million below forecast at $47.2 billion, which was spread across a number of departments, allowing English to say the government "continues to do a good job of controlling its own expenditure."

The operating balance was a deficit of $952 billion, compared to a forecast surplus of $941 million. That reflected net losses on non-financial instruments - mainly actuarial losses on ACC and Government Superannuation Fund (GSF) liabilities - that were $4.3 billion more than expected, partly offset by net gains on financial instruments coming in $1.7 billion higher than forecast.

The government's net debt was $63.5 billion, or 26.7 percent of gross domestic product, as at Feb. 28, $700 million below forecast, while gross debt of $87.5 billion, or 36.8 percent of GDP, was $3.5 billion more than expected. The Crown's residual cash deficit was $3.7 billion, or $428 million better than expected.

As at Feb. 28, total Crown assets were valued at $263.5 billion, and liabilities at $183.7 billion and the Crown's share of net worth stood at $74.6 billion.

Four major business risks you should watch out for
"It’s essential for businesses to monitor human behaviour, and apply and enforce policies consistently. The alternative is to lose large amounts of unrecoverable money as a result of people’s actions."
Government still stuck in the past? Not on GovTech's watch
What exactly is GovTech and what’s been happening in our capital city?
Workday – who are they and what do they do?
We quickly summarise everything you need to know about the up and coming business software leader.
Xero weighs in on Fraud Awareness Week
Unfortunately the Xero Security team is all too aware of fraud. We see it affecting our customers and community as an almost daily event.  
"Is this for real?" The reality of fraud against New Zealanders
Is this for real? More often than not these days it can be hard to tell, and it’s okay to be a bit suspicious, especially when it comes to fraud.
Hands-on review: The iPhone Xs
The iPhone Xs is a win that brought numerous new and exciting features to the market.
MicroMaker3D's tiny 3D printing tech is 'game changing'
Imagine 3D printing things thinner and smaller than a human hair, and how they could be used in everything from sensors, electronics, wearables and meshes.
Three ways to improve mental health support in the workplace
“Instead of scrambling into action after a crisis, employers need to be more proactive in supporting employees."