Prime Minister John Key says the Government is still on track to deliver a surplus in two years' time, though it will be smaller than the pre-election prediction.[image:4456:third:right]
In a speech to the Waitakere Business Club in Auckland on Thursday, Mr Key said the surplus in 2014-15 would range from $300 million to $500 million.
The pre-election fiscal update predicted a surplus of $1.45 billion.
Mr Key said economic events in Europe meant the surplus was understandably smaller, but New Zealand was still in a good position compared to a lot of other nations.
However, he said if there was a major shock to the global economy, that surplus target would be reconsidered and that could mean cuts in spending.
He said priorities for the year ahead included the rebuilding of Christchurch and changes to the state sector to deliver better value for money.
The Prime Minister said there was a lot of work to do to stay on track for a surplus.
Finance Minister Bill English is confident the Government will get its books back into surplus by 2014-15, although it understands the risk posed to the New Zealand economy by what is happening in Europe.
"Their debt's growing and their economies are now starting to shrink, and that makes it very difficult.
"The way for us to deal with that is to get on with the job of making our economy more competitive, growing our export base, selling more to the countries who are going to be in better shape for the next 10 years."
Mr English says the prospects of New Zealand's trading partners have continued to deteriorate over the past six months, and the Government would have to rethink its outlook if there was a major economic meltdown.
Labour Party leader David Shearer says the Prime Minister's speech is designed to lower expectations about how the economy will perform.
Mr Shearer says the speech is setting up the country to expect an economic decline and cuts in spending.
New Zealand First leader Winston Peters says the Prime Minister's pre-election forecast of a surplus was a false promise.
Mr Peters says the forecast Mr Key was highlighting before the election was too optimistic, given the global economic conditions that were well known at that time.
He says Mr Key is now trying to let the country down lightly about the reality of any surplus on the Crown accounts.