Treasury expected to cut forecasts

HAMISH RUTHERFORD
Last updated 05:00 17/12/2012

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The Treasury is expected to cut its forecasts for economic growth this week, but maintains that New Zealand is still on track to reach surplus in three years.

Tomorrow sees the release of the Half Year Economic and Fiscal Update, a midyear budget update in which the Treasury outlines its expectations for the Government's finances.

Prime Minister John Key has said repeatedly that the Government would eliminate New Zealand's budget deficit by the 2014/15 financial year, when it will post a small surplus. Earlier this month Mr Key said he was "not uncomfortable" with the numbers he had seen ahead of the Treasury's update.

However, tomorrow's update is likely to paint a different picture to that of six months ago, which could spell signals of deeper cuts in government spending.

In May's Budget, Treasury said it expected the economy would grow at 2.5-3 per cent over the next few years, a rate which would meet Mr Key's surplus goal, but would be stronger than expected by most economists.

In September, the financial markets appeared to have dismissed the aim, due to signs that the economy was growing more slowly than expected.

A survey of economists undertaken by the New Zealand Institute of Economic Research, found an average expectation of a $1.1 billion deficit in 2014/15.

The Government's insistence that the surplus target can be reached appears to have won over some economists.

"The prime minister's come out saying he thinks it's still achievable. We'll take him at his word," ANZ chief economist Cameron Bagrie said. But he said he expected the Treasury would trim back how much the economy would grow in the next few years.

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