Govt fiscal highwire act continues

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Last updated 13:23 17/12/2013

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OPINION: The Government's fiscal highwire act continues with the 2014/15 Budget surplus now forecast to be $86 million.

But that wafer-thin surplus - a virtual political necessity - belies the robust improvement underlying the latest forecasts unveiled by the Treasury today.

The forecast for next year is just $11m more than forecast in May and $22m better than tipped last year at this time.

In the meantime, the Government has moved to cut ACC premiums that would have virtually doubled the forecast (although accepting ACC's recommendation of cuts to the vehicle account would have wiped out the surplus completely, so it is easy to see why the Government said thanks but no thanks to that recommendation).

Evidence of the improved outlook for the economy and the Government's books is tucked away all through the accounts.

Cullen fund payments will now resume in 2019, a year earlier than previously forecast.

Debt repayment also starts a year earlier, the debt peak is now $65b not $70b and growth tipped next year at 3.6 per cent will warm the heart of any government looking to win election for a third term.

The half-year update is a reminder, if one was needed, of the relative failure of the asset sales programme.

It has proved to be a net cost - about $108m a year - though Finance Minister Bill English continues to defend the sales.

He says he does not put much store by forecast profits of "risky commercial companies" that underpin the difference between annual foregone future profits ($327m) and the reduced cost of servicing debt ($219m).

For now the new spending allowance remains at $1b adjusted annually to account for inflation, but there must be room to step that up in future years if forecasts become reality.

With a surplus of $5.6b now forecast in 2018 - election year - there is room at the very least to fill his shopping list for his next term; to cut debt, resume payments to the Cullen fund and "invest in priority public services".

English told reporters at the Treasury lockup today that tax cuts were "unlikely" next year, although the $1b of ACC cuts in the pipeline are a proxy for that.

But they surely cannot be ruled out longer term, though he is not about to get ahead of himself, or blow a powerful political weapon for the next campaign by signalling them this early.

Next year, though, a contingent promise of tax cuts - at the least a move on the thresholds to counter the "fiscal creep" that pushes taxpayers into higher tax brackets - must at least be an option on these numbers.

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It's a fair bet it is on the Treasury's mind anyway.

- Fairfax Media

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