The New Zealand government faces a wider operating deficit in the current financial year than previously predicted due to cuts to Accident Compensation Corp levies and smaller returns from state-owned enterprises, though its wafer-thin 2015 surplus is seen as getting a smidgeon bigger.
The Half Year Economic and Fiscal Update forecasts a wider shortfall in the operating balance before gains and losses (obegal) in the 2014 financial year of $2.3 billion, compared to $2 billion predicted in the May budget, before posting a surplus of $86 million the following year, a touch more than the $75 million previously forecast.
The larger deficit for the year ending June 30, 2014 stems from some $350 million in cuts to ACC levies, foregone profits from the partially privatised power companies and lower interest income from the New Zealand Superannuation Fund.
"We remain on track to surplus in 2014/15, although it will still be a challenge to actually reach surplus in that financial year," Finance Minister Bill English said at a media briefing in Wellington.
Still, tax revenue growth is forecast to accelerate faster than predicted in the May budget as an expanding labour market provides higher income tax and rising incomes are caught in the fiscal drag of individuals rising to higher tax brackets.
Beyond the next two years bigger operating surpluses are forecast, with the obegal seen rising to $1.7 billion in the 2016 financial year, then $3.1 billion and $5.6 billion the following years. That compares to the May forecast surpluses of $800 million and $2.6 billion in 2016 and 2017.
Tax revenue is seen as growing at an annual rate of 5.8 percent over the forecast period, with the bulk of the increases likely to come from personal income tax and Goods and Service Tax.
The Crown expects to return to a residual cash surplus of $1.2 billion by the 2017 financial year, after which the government anticipates reducing its debt, a year earlier than predicted in the May Budget.
That's in spite of the government to raise less from its partial privatisation programme than previously thought, after coal miner Solid Energy was taken off the list and an Opposition policy to overhaul the electricity market raised fears about the value of the power companies.
Treasury estimates total proceeds of between $4.6 billion and $5 billion from the programme, down from the past forecast of between $5 billion to $7 billion.
Net debt is seen as peaking in 2016 at $64.5 billion, or 25.8 percent of gross domestic product, falling to $60.4 billion, or 22.3 percent of GDP, by 2018.
English wants to reduce that to 20 percent before resuming contributions to the NZ Super Fund, which sees to help fund the retirement of the 'baby boomer' generation.
The government's operating balance including value movements in financial instruments is forecast to be in surplus of $6.93 billion in the 2014 year due to actuarial gains, falling to $1.64 billion in 2015, before rising steadily to $8.95 billion by 2018.
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