Petrol, road charges save the day

VERNON SMALL
Last updated 12:56 18/12/2012

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OPINION: There would be no "buggerising around" to make sure the Government delivered a forecast surplus in 2014-15, Prime Minister John Key promised earlier this month.

Well, call it what you will it was this morning's 11th hour announcement of an increase in excise on petrol and road user charges that saved the day, adding $300m to the 2014-15 balance.

However it was done, Treasury has delivered the politically crucial - but economically largely irrelevant - forecast surplus by a thin cat's whisker.

At just $66m, down from $197m in the May Budget forecasts, it is about as substantial as the Cheshire Cat - a smile on Finance Minister Bill English's face but little else.

And as he himself noted, it is "at risk from a further deterioration in the world economy". And those global risks are "skewed to the downside".

In other words, the mix of risks are more likely to deliver bad news than good.

There are some fairly heroic assumptions underpinning even the slim surplus forecast. It requires a bounce back in immigration from a net outflow of 3000 this year to an inflow of 12,000 by 2015, predicated on a narrowing gap between the performance of our economy and that of Australia.

At the same time unemployment is forecast to fall from the current 7.3 per cent to 6.9 per cent early next year and then to under 6 per cent by 2015 and to 5.1 per cent a couple of years later.

That in itself delivers a lower forecast cost of welfare that helps hit the surplus target. Growth meanwhile is expected to stay grumpy for a very long time, stabilising at 2.4 per cent - lower than Treasury's earlier view that it could sustain 3 per cent over the next few years but still better than the OECD average of 1.5 per cent.

That in turn is reliant on the Canterbury rebuild over the next two years - but again the timing and scale of that are uncertain. And Treasury today added a cool $5b to the damage, taking it to $25b, with an estimate the total capital investment to rebuild could reach $30b of which $13b comes from central government.

Of course there are a number of forecasts yet to come that the Government has to negotiate before it can deliver on the 2014-15 surplus, including two more Budgets.

But there is still an allowance for some new spending built into the system.That amounts to $800m now rising to $1.2b in coming years and is likely to be the first place the Government goes if it decides a bit of "buggerising around" is preferable to th epolitical embarrassment of missing its target.

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- © Fairfax NZ News

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