The forecast Budget surplus for the year to June 30 2015 will be small and exposed to the influence of even small changes in the value of some government liabilities, particularly government bonds, says English.
The forecast Budget surplus for the year to June 30 2015 will be small and exposed to the influence of even small changes in the value of some government liabilities, particularly government bonds, says the Minister of Finance, Bill English.
Speaking at Prime Minister John Key's post-Cabinet press conference this afternoon, English said the accounting treatment of items such as interest on government bonds could prove sufficient to wipe out gains in other areas.
"The impact of greater tax revenue or lower benefits can be offset simply by the size of these other accounting effects," he said, foreshadowing the likelihood that the surplus forecast in the December Economic and Fiscal Update, due on Dec. 17, would be "small" and would leave no room for an election year spend-up.
He emphasised that government debt had risen from $10 billion before the 2008 global financial crisis and the Christchurch earthquakes of 2010 and 2011 to $60 billion today and that the investment portfolios of both the New Zealand Superannuation Fund and Accident Compensation Corp had grown substantially since the government was first elected in 2008.
The warning should not be a surprise, since the Budget in May forecast a wafer-thin surplus in June 2015 of just $75 million - a figure easily wiped out by small changes in tax, spending or other factors.
English's decision to highlight the relative volatility of assets on the government's accounts, however, suggests analysis currently being completed for the DEFU publication has thrown up a higher degree of potential for a volatile outcome than was previously understood.
"The accounting impact of this large growth of financial assets is a bit unpredictable," said English. "It's like trying to land on a penny in the middle of a storm."
While the official surplus measure, known as the OBEGAL (operating balance excluding gains and losses) excluded "most of the overs and unders" created by changes in the value of Crown assets, it didn't exclude them all.
Asked whether the OBEGAL measure, introduced under Labour Finance Minister Michael Cullen, could do with a change to eliminate the problem, English said it was possible.
While changes in the value of financial instruments have no cash impact on the government's books - in fact, if all asset value changes were taken into account there would be a Budget surplus already - the way they are treated by accounting conventions can be the difference between surplus and deficit when the government's books are close to being in balance.
(BusinessDesk)
