Treasury slices surplus forecast

A more sombre economic outlook formed the backdrop to the government's Budget Policy Statement (BPS), released this morning.

There were no real surprises in the annual document, which sets out the government's priorities for the upcoming budget.

Forecast GDP for the current year is now down to 1.9% from 2.3%; the following year is now forecast to have a 2.8% instead of the 3.4% previously forecast; the March 2014 year is expected to be a bit better, up from 3.3% to 3.8%; and the 2015 year is now forecast to be 3.1% instead of 2.9%.

Pretty small
The government still plans to hit a surplus by the end of the 2015 financial year, although Finance Minister Bill English conceded the forecast surplus - down from just over $1.4 billion to $370 million – is now "pretty small."

The government would re-evaluate this target if there were another "shock" such as a further economic meltdown in Europe or another major earthquake in Christchurch.

Both those factors were cited in the BPS as factors in reducing the outlook for economic growth in the current financial year and the next year.

Mr English did not seem too concerned about the EU situation.

"It would have to be pretty severe… while there are some things to worry about on any given day and any given year, they seem to find a way through these crises…and find their way to the next one," he told a media briefing this morning.

"Europe is going to stay like this for any number of years and we don't want to be totally focussed on it, because our own prospects are pretty good."

The priorities for the upcoming budget appear to be largely unchanged: the aim is to keep new operating allowance at an extra $800 million a year for the next four years, and for there to be a net zero allowance for extra capital spending from

The planned float of up to 49% of four government-owned energy companies still features strongly.

"The fiscal impact [of the floats] will be roughly neutral on the government's operating balance, but we will have significantly less debt," Mr English said.

"Ultimately the impact will depend on the actual price, and that will depend on a market view of what those companies are worth. If the market believes the companies will be very profitable then they will pay more for the shares, and we will get a bigger lump sum now."

The official estimate is the sale of the shares will gather between $5-7 billion, with recent estimates putting it somewhere between $6.2-6.5 billion.