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New Zealand government deficit to be wider than forecast

Xinhua, May 1, 2015 Adjust font size:

The New Zealand government's operating deficit this financial year is going to be worse than previously expected, Finance Minister Bill English said Friday.

The country remained on track to build on economic growth of almost 3 percent a year on average over the last four years, and unemployment was expected to drop below 5 percent over the next two years, English said in a published speech to a Wellington business gathering.

"But at the same time, very low inflation and lower commodity prices means growth in the nominal economy, which is the dollar value of what we produce each year, is more muted than expected," said English.

The Treasury expected nominal GDP over the next four years through to 2019 to be around 1.5 percent lower than forecast in last year's government Budget, mainly because of lower inflation.

"That is about 15 billion NZ dollars (11.37 billion U.S. dollars) less and, to put that in context that is more than half of the impact of the Global Financial Crisis," said English.

As a consequence, tax revenue was forecast to be 4.5 billion NZ dollars (3.41 billion U.S. dollars) less over the next four years.

In December, the Treasury forecast an operating deficit of around 570 million NZ dollars (432.17 million U.S. dollars) for the 2014-2015 year, which was 0.2 percent of GDP, and a similar sum in surplus in 2015-2016.

But, English said, both forecasts had "deteriorated a little."

"So we expect the Budget to forecast a slightly bigger deficit for 2014-2015 and to forecast a slightly smaller surplus for 2015- 2016," he said.

"While progress on surpluses is slower than expected, we are on track to surplus and repaying debt."

The main opposition Labour Party said the government was breaking a campaign promise made in the last two general elections in 2011 and 2014 of an operating surplus this financial year.

"Not only is this year's surplus a dead duck, the surplus for next year is beginning to look under threat, especially with a 7- billion-NZ-dollar (5.3 billion U.S. dollars) economic black hole opening up thanks to the fall in dairy prices," Labour finance spokesperson Grant Robertson said in a statement.

"That could mean Bill English will deliver eight deficits out of eight Budgets." Endi