Finance Minister Bill English is softening the public up for a wafer-thin surplus in 2014-15 as worsening forecasts put the Government's key election promise under threat.
In a speech setting the scene for the May 24 Budget, Mr English said yesterday that preliminary estimates in recent weeks had revealed a $1 billion worsening of the forecasts for 2014-15.
Instead of a $370 million surplus, forecast in the February Budget Policy Statement, the Government was looking at a $640m deficit.
After cancelling a provision of $800m for new spending, the Government was planning its second "zero Budget" in a row as it fought to get the books back in the black.
But even then, it was likely to be a close call.
"We're not going to have a big surplus. If we can get to near surplus, somewhere around there, I think that will be an achievement," he told reporters after a speech to the Wellington Employers' Chamber of Commerce.
He would like to have a surplus of $2b or $3b "but it won't be anything like that".
The deterioration was manageable and reflected several factors. Lower global growth had curbed New Zealand's short-term growth and that led to lower revenue.
Also, profits from the New Zealand Superannuation Fund and State Owned Enterprises were lower, while interest costs and the earthquake bill had gone up.
He was determined to achieve a surplus but, "in an economic sense, a few hundred million here or there over a $70b budget is unimportant in the long term".
But it was important to reflect the public mood, which was to stop debt growing, he said.
The Government was also reviewing the $1.2b earmarked for new spending in 2013 and 2014. It was not signalling a third zero Budget, but it would consider that option if its finances were in a similar situation next year.
Mr English was confident the economy would not dip back into recession, as had happened in Britain this week.
But Labour finance spokesman David Parker said his speech was a recognition the Government had failed to deliver on its economic growth promises, and he was relying on the "austerity fairy" to boost growth.
"A zero budget is what you get when you fail. We all know what happened in the aftermath of the last `zero budget' – there were two credit downgrades and a greater-than-anticipated increase in debt."
Mr English said as well as spending cuts and savings in the public sector, ministers were considering ways to increase revenue, signalled in the 2011 Budget.
They included changes to the tax on employee benefits, mixed-use assets such as holiday homes, and livestock.
The Budget would also propose limiting extra spending to population growth and inflation, under the support deal with ACT MP John Banks.
The limit would exclude spending outside its control, or which would help stabilise the economy in a downturn, such as on natural disasters or unemployment benefits.
He pledged to maintain entitlements to welfare and superannuation, and continuing expensive programmes such as Working for Families, interest-free student loans and early-childhood education subsidies.
- © Fairfax NZ News
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