English notes improved budget position, warns of ongoing deficits

Friday 3rd July 2009

Finance Minister Bill English warned against taking too much heart from Treasury figures showing a smaller-than-forecast operating deficit because the accounts are set to remain in the red for the next 10 years as the government ramps up borrowing.

Figures today showed the operating balance in the 11 months through May was $7.16 billion, smaller than the $8.33 deficit predicted in the May budget. The Crown accounts were swelled by better-than-expected investment gains from the NZS Fund and Accident Compensation Corp. Their funds remain in a loss position for the year to date.

“We are facing large structural deficits that are forecast to continue for the next 10 years,” English said in a statement. The government will borrow an extra $30 billion over the next four years “to preserve welfare entitlements, invest in productive infrastructure and prepare the economy for recovery.”

English said the government needs to maintain ongoing restraint on state spending as debt levels rise, to ensure a return to budget surpluses in the next 10 years. In his first budget in May, English deferred income tax cuts planned for the next two years and suspended payments to the NZ Super Fund.

The Treasury data for the latest 11 months showed that while tax revenue was in line with forecasts, company tax receipts were $400 million lower than expected, as provisional tax payments were dented by sinking corporate earnings.

Investors are awaiting company results for the second quarter when the reporting season kicks in next month.

In a possible signal of the strength of second-quarter earnings, PGG Wrightson, New Zealand’s biggest rural services company, last month said net operating earnings in the 12 months through June 30 would be $30 million to $32 million, down from a previous forecast of $36 million to $42 million, and a decline from last year’s $39.2 million.

English said the drop in corporate tax receipts indicated business profitability is weaker than expected.

Businesswire.co.nz

Comments from our readers

No comments yet