Kiwi gov't blames inflation for failing to hit surplus

The New Zealand government Thursday blamed low inflation as it was forced to admit it would fail to hit its self-imposed target of an operating surplus this financial year.

Treasury forecasts showed a deficit of 684 million NZ dollars ( 511.16 million U.S. dollars), which was 2.2 billion NZ dollars (1. 61 billion U.S. dollars) less than last year's deficit, Finance Minister Bill English said in a published speech while delivering the annual Budget to Parliament.

"New Zealand remains one of the faster-growing developed economies, with conditions supporting sustained solid growth, forecast at 2.8 percent on average over the next four years," English said.

"Unusually, given our current growth, New Zealand is experiencing very low inflation. Annual CPI (consumer price inflation) inflation is only 0.1 percent, compared to the Budget 2014 forecast of 1.8 percent," he said.

While it was good news for consumers and kept interest rates down, it also slowed growth in the gross domestic product (GDP).

"But lower-than-expected prices also mean that nominal GDP, the size of the economy in dollar terms, is not rising as quickly as previously expected, despite solid growth in the real economy," said English.

"This means tax revenue is not rising as quickly either," he said.

"Compared to what was forecast in last year's Budget, nominal GDP is expected to be 15 billion NZ dollars (10.93 billion U.S. dollars) lower in total over this year and the next three years, and tax revenue to be 4.5 billion NZ dollars (3.29 billion U.S. dollars) lower in total over the same period."

However, the economic outlook remained positive, with the Treasury predicting solid growth, growing employment and real wage increases.

The Budget forecasts for the 2015-2016 financial year showed a modest operating surplus of 176 million NZ dollars (128.86 million U.S. dollars), increasing to 1.5 billion NZ dollars (1.1 billion U. S. dollars) the following year, and 3.6 billion NZ dollars (2.64 billion U.S. dollars) in 2018-2019.

"The surplus target has helped to turn around the government's books. We've come from an 18.4 billion NZ dollars (13.48 billion U. S. dollars) deficit four years ago to seeing steadily rising surpluses into the future," he said.

The forecasts also show the government meeting its other major fiscal target of reducing net government debt to 20 percent of GDP by 2020.

"The government has no intention of making cuts to services, programmes or income support in response to lower tax revenue simply to chase a surplus," he said.

Extra allowances of one billion NZ dollars (732.8 million U.S. dollars) in the Budgets for this year and 2016 and a one-off higher Budget allowance of 2.5 billion NZ dollars (1.83 billion U. S. dollars) in 2017 provided options for future income tax reductions should fiscal and economic conditions allow. Endi