Surpluses still in forecasts only

The Crown books are in good shape and on track to a surplus next year as the Government maintains its careful and responsible management of public spending, Finance Minister Bill English says.

Delivering his seventh, and probably penultimate Budget yesterday, Mr English said the Treasury was predicting solid growth, growing employment and real wage increases.

However, lower inflation meant tax revenue was rising less quickly than expected.

Budget 2015 forecasts for 2015-16 showed a modest surplus of $176 million, increasing to $1.5 billion the following year and $2.6 billion the year after.

This year, the forecasts showed a deficit of $684 million for the year ended June, $2.2billion less than last year's deficit.

However, the Treasury forecasts have been notoriously inaccurate in past years with actual results well outside previous forecasts.

Even December half-year update forecasts were inaccurate by April from global economic conditions, milk prices and the east coast drought.

ASB chief economist Nick Tuffley said Mr English had missed its stated surplus target and that would have to wait until next year.

But the repair job following the global financial crisis and the Canterbury earthquakes was nearing completion and that would eventually reduce debt as a percentage of GDP.

''The economy is similarly well-placed. Forecast growth is solid for the next four years. Moreover, relative to our developed economy peers, New Zealand's economy compares favourably.''

The Government continued to employ a no-surprise approach, reassuring markets, businesses and households alike the Government was staying on course, Mr Tuffley said.

In the same vein, spending has focused on perceived areas of need while keeping a tight leash on overall spending.

What mattered was the direction of the operating balance. While the trend was modest, it was still a trend of growing surpluses, he said.

The surplus increases did take a pause in 2017 - an election year - as the Government had earmarked tax cuts should economic and fiscal conditions permit.

Mr English said the overall fiscal trajectory had not changed. The surplus target had helped to turn around the Government's books.

''We've come from an $18.4 billion deficit four years ago to seeing steadily rising surpluses into the future.''

The forecasts also showed the Government was meeting its other major fiscal target of reducing net Government debt to 20% of GDP by 2020, he said.

The Government had no intention of making cuts to services, programmes or income support in response to lower tax revenue simply to chase a surplus.

Westpac senior economist Felix Delbruck said the Treasury's forecasts were similar to those of Westpac with economic growth of just more than 3% for 2015-16.

''Where we continue to have questions is around the Treasury's forecasts in the outer years of the projections as the Canterbury rebuild winds down.''

The growth forecasts hovered around 2.8% through to 2018, slowing to 2.4% in the last year.

That seemed a benign view of what a post-rebuild economic slowdown might look like and more optimistic than the Treasury's own forecasts six months ago, he said.

The optimism suggested downside risks to the Treasury's revenue forecasts further down the track where the forecasts for surpluses were already looking vulnerable, Mr Delbruck said.

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