Credentials intact - just

Finance Minister Bill English goes into the election campaign with his money management credentials intact but only just because there are warning signs his prized surplus is in danger of disappearing.

The Treasury yesterday released its pre-election fiscal update (Prefu) in which it warns of issues in the future which may affect New Zealand's growth.

Treasury figures' meaning disputed

The Treasury is forecasting a reduced operating balance for the current financial year of $297 million, from $372 million in the May Budget 2014. From there, the surplus increases to $2.9 billion, or 1.1% of GDP by 2017-18.

Where Mr English is let down is in the increasing debt and lower residual cash balances in the forecasts.

Debt rises from $59.9 billion this year to $64.3 billion next year, rising to $67.9 billion in 2018.

Cash reduces from $4.2 billion this year to $300 million in 2018.

The Crown's balance sheet strengthens across the forecast period with net worth attributable to the Crown reaching $92 billion by 2018 compared with $74.4 billion in the 2013-14 financial year.

ASB chief economist Nick Tuffley said the Treasury had marginally reduced its operating balance forecasts in each year.

However, in each year core Crown revenue had been revised lower by between $300 million and $500 million.

''For us, this errs on the light side although it is reasonable given Treasury's economic forecasts.''

The relevance of the Prefu was short-lived and would be replaced by a half-year update in December.

At that point, it could be influenced by policy changes either through any shift in post-election policy direction or through any response to the slight shift in the underlying economic outlook, Mr Tuffley said.

Among the key risks to economic growth are falling commodity prices, particularly dairy export prices.

The latest GlobalDairyTrade auction prices continue to fall, it would point to the risk of a larger fall in dairy prices in the terms of trade.

An auction was due to be held early today.

Dairy auction prices had fallen further since the finalisation of the Prefu in mid-July, dropping 8.4% in US dollar value in early auction.

The Treasury said dairy auction prices tended to be volatile and the recent falls might overstate the weakness in demand.

Forestry prices had also fallen as demand from China had declined with slower growth in housing construction.

Those export price falls had been only partly offset by higher meat prices as sheep meat prices were lifted by additional demand from China and meat supply remained constrained in the United States.

Much relies on the surge in residential construction in Christchurch and Auckland, faster population growth as a result of higher net migration inflows and historically high terms of trade, despite a near-term adjustment.

Factors expected to moderate growth in the economy include rising interest rates, the continuing high value of the New Zealand dollar and fiscal restraint.

The Treasury said the capacity of the economy to grow was marginally increased by faster population growth but pressure on resources was expected to increase as the pace of expansion exceeded the economy's potential rate of growth.

The pressure would manifest itself in higher inflation.

Mr Tuffley said the growth outlook had been shaved back but by not much.

''Despite a higher starting point for GDP for the Treasury forecasts, recent activity indicators point to a more marked moderation in growth over the remainder of 2014 compared to its Budget 2014 forecasts.''

The Treasury's GDP outlook was fractionally more upbeat than the ASB forecast, he said.

The Treasury forecast for March 2015 was 3.8% compared with 3.6% from ASB.

There were no implications for financial markets in the Prefu, with the bond tender programme unchanged, Mr Tuffley said.

''If anything, the surpluses for the first couple years are a shade higher than we expected with the Treasury's economic forecasts slightly stronger than our own and highlighting a small risk the revenues don't quite meet the projections.''

The forecasts, with the larger cash shortfall, implied the bond tender programme was at risk of being revised higher at a later date or made up for through reduced holding of financial assets.

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