Accounts great in comparison: BNZ

Finance Minister Bill English yesterday delivered exactly what he had promised - a return to fiscal surplus by June 2015.

Importantly, rating agency Standard and Poor's said Budget 2012 would have no immediate effect on its ratings on New Zealand.

"The Budget is the latest incremental step toward consolidating the Government's fiscal settings after four years of deficits associated with the recession-related fiscal shock and the sizeable costs stemming from the Canterbury earthquakes," credit analyst Kyran Curry said.

The ratings on New Zealand reflected the country's fiscal and monetary policy flexibility, economic resilience, public policy stability and its sound financial sector.

Those strengths were moderated by the country's high external imbalances which were accompanied by high, albeit falling, household and agriculture sector debt, dependence on commodity income and emerging fiscal pressures associated with its ageing population, he said.

Mr English said the forecast surplus for 2015 was $197 million and forecast to grow to $2.1 billion in 2016 and $4.4 billion in 2017.

"These surpluses will allow the Government to rebuild New Zealand's resilience to further shocks, help lift national savings, keep interest rates lower for longer, take pressure off the exchange rate and reduce future financial costs.

"A significant surplus will also give us choices when it comes to public services which we don't have while we're running deficits," he said.

BNZ markets economist Stephen Toplis said there would be much debate as to the robustness of the economic forecasts that lay beneath the projections released in Budget 2012.

"But this is just a distraction from the real message which is that the state of New Zealand's government accounts is great by international comparison."

Barring international disaster, a surplus of some sort loomed within the forecast horizon and debt looked as if it could be contained, he said.

The Government had the luxury of being able to run a tight Budget without the need for the sort of crash-and-burn fiscal austerity many regimes throughout the world were forced into implementing.

However, Mr Toplis expressed some concern the Treasury's view of the world was too optimistic. The Treasury forecasted GDP growth for 2.6% for the March year followed by 3.4% in 2014, 3.1% for 2015 and 2.9% for 2016.

The BNZ forecasts were 2.3%, 2.5%, 1.3% and 2.5% respectively during the same period.

"It's difficult to know exactly why our figures are different to Treasury's.

"However, we feel that the degree of uncertainty that pervades our world at the moment is likely to create an environment where consumers feel relatively less comfortable spending and businesses are less likely to invest than Treasury has assumed," he said.

Despite the Government's firm commitment on the surplus being achieved, Mr Toplis warned about betting on it being achieved within the timeframe outlined by Mr English.

It was worth noting the cumulative forecast in real expenditure the Government had outlined for itself in the Budget was a "big fat zero".

History suggested it would be a remarkable performance if the Government was to achieve that target, he said.

The forecast

•Books return to surplus by June 2015.

•GDP growth 2.6% for the year ended March 2013.

•GDP rises to 3.4% in 2014 and averages 3% a year for the next two years.

•Official cash rate begins rising early next year and increases by 1.75% in total. (Budget surplus still on near horizon.)


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