Economics: Surplus? What Surplus?
Byline: Bob Edlin
The Institute of Economic Research's June-quarter Consensus Forecasts, an average of NZ economic forecasts compiled from a survey of financial and economic agencies, had some spoiling stuff for anyone believing the Government will bring its operating balance back into surplus in 2014/15. The mean forecast was a thin surplus of just $395 million that year, but the most pessimistic forecaster expected the balance to be $1 billion in deficit, reducing to a $9 million deficit a year later.
The forecasters weren't then privy to the financial statements for the 11 months to 30 June. These showed a cheering improvement in the Government's operating deficit before gains and losses, helped by healthy tax flows. Questioned in Parliament about the good news, Finance Minister Bill English predicted a deficit around $5.5bn for 2012/13, rather than the $7.5bn forecast in Budget 2012 in May last year, so long as the improvement continued along with the usual historical patterns of spending. And the figures confirmed the Government remained on track to return to surplus in 2014/15.
This surplus, a target set some time ago, has become important for political reasons rather than economic ones. Prophesies of failure to hit it accordingly would be likely to hit a nerve in the Beehive. But a Finance Minister has a firmer grip on things than a forecaster. Policies can be tweaked to bring in more revenue, if need be. In December last year, for example, Bill English announced excise on petrol would increase by nine cents a litre by July 2015. Motorists felt the first bite last month, the first of three annual increases of 3c/litre each July until the total tax take reaches 59.5c/ litre by mid -- 2015. The Government said the money will contribute to roads of national significance. Labour reckoned the increases are needed only because the Government gave top income earners big tax cuts in 2010, and an extra $900 million is being recovered through petrol taxes.
Another bit of tweaking could increase the flow of GST revenue, if need be (and without increasing the tax rate). …