8 May 2012

English downplays return to surplus

11:09 pm on 8 May 2012

Finance Minister Bill English is downplaying the importance of the Government's target of returning its books to surplus by the 2014/15 financial year.

Mr English was commenting on Tuesday after the operating deficit before gains and losses widened to $6.1 billion in the nine months to the end of March.

That is 15%, or nearly $800 million, higher than the deficit forecast in the Pre-Election Fiscal Update in October last year.

Once gains and losses from the Government's investments are included, the deficit was nearly $9 billion, 17% worse than forecast before the election in November last year.

Tax revenue was down nearly 4% compared to pre-election forecasts, due to weaker income, GST and corporate tax takes, though it has been offset by lower than expected Crown expenses.

Bill English says the Government is confident of getting the books back into surplus as planned - but its importance should not be overstated.

"In the long run, we need a more productive, competitive economy. So that means all the changes that we're looking at making through a range of things from the Building Act to the Resource Management Act to the oil and gas exploration programme are all just as important as the Government getting back to surplus."

But the Green Party says the Finance Minister is just trying to shift attention from the Government's failed economic policies.

Co-leader Russel Norman says by downplaying the surplus target, Mr English is acknowledging that the 2010 tax switch has not worked.

"The Government has to keep coming up with new excuses to explain their extremely poor fiscal and economic management. We said very clearly back in 2010 that the tax changes they brought in would drive the government books into deficit - that's exactly what's happened.

"And what that means in practice is that the New Zealand Government is having to borrow large amounts of money in order to fund tax cuts for upper income earners."

The Treasury says the higher deficit also reflects an extra $500 million in costs from another earthquake in Christchurch just before Christmas last year.

It says while the economy has been weaker than expected, a stronger performance by some corporate taxpayers should trim the expected tax shortfall by about $400 million in the final quarter of the year.

Net debt stood at 24.5% of gross domestic product.