15 Oct 2015

Does Govt surplus change economic outlook?

10:31 am on 15 October 2015

The government may have achieved a budget surplus but the economic outlook remains cloudy, an economist says.

New Zealand money.

The government's move into the black may not last, economists have warned. Photo: RNZ / Alexander Robertson

Infometrics senior economist Benje Patterson said the surplus of $414 million for the year to June was achieved by good luck and good management.

Mr Patterson said the tax take benefited from solid economic growth, while departments looked to have kept a relatively tight rein on spending, but he said in all likelihood the country's finances this year will be back in deficit.

"We're going to enter into 2016 in drought conditions amid low dairy prices, and these conditions are going to constrain economic growth and constrain the tax take," he said.

Continued talk of possible tax cuts in 2017 sounded like a pre-election sweetener, he said, and the money would be better directed elsewhere.

Bill English was all smiles at today's media lock-up.

Bill English was all smiles at today's media lock-up. Photo: RNZ/ Claire Eastham-Farrelly

Finance Minister Bill English said this morning that he would not be able to guarantee future surpluses, but hoped to be able to deliver tax cuts.

Credit rating agency Standard and Poors has said the return to surplus will not change its view or AA rating of New Zealand.

Standard and Poors associate director of corporate and government ratings Craig Michaels said it was keeping its outlook for New Zealand at stable because the economy was still carrying too much external debt and posting current account deficits.

"Those current account deficits are going to get bigger over the next couple of years. Unless that story changes significantly, we don't see a lot of upside pressure to the rating," he said.

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