Govt coffers fuller than expected

By Felicity Anderson, Nzoom.com Business News Editor

Thursday 23rd May 2002

The government's got more money in its operating accounts than it expected to have back in December.

But it is going to have to borrow a bit more a couple of years out and the added revenue it has been and expects to collect from taxes is reliant on New Zealand's economy remaining resilient and global economic growth continuing to improve.

That's the upshot of the figures tabled in Parliament by Treasurer and Finance Minister Michael Cullen in Budget 2002.

Economists had been predicting the surplus would rise from the forecast $1 billion in the December Economic and Fiscal Update (Defu) to between $1.5b and $1.6b.

Cullen said the surplus was actually projected to be $2.3 billion after revaluations and accounting changes) for 2001-02 and in the following year around $2.28 billion.

He put that down to better than expected economic health. Quarterly gross domesic product (GDP) growth had averaged around 0.4% over the second half of 2001, giving 2.4% for the year.

Now it looked as though the economy has grown by around 1% in the March quarter, driven by household spending and a rebound in exports.

The government is predicting GDP growth of 3.1% to the end of March 2003, significantly better than the 1.9% projected back in December.

When it comes to raising money the government bond programme this year has been reduced by $350 million to $3.75 billion and the June 20 bond tender cancelled.

But the bond programme for 2002-03 has been set at $3.4 billion and $5.6 billion in 2003/04.

The $3.4 billion is down from a forecast $5.1 billion because more revenue is expected.

But the Budget update says a bond programme of $5.6 billion in 2003-04, a level not seen since the 1990s, reflects the timing of planned capital spending.

Substantial acquisition of defence equipment happens at the same time as "relatively higher refinancing requirements of existing Crown entity private sector debt".

Cullen said the operating surplus of $2.3 billion for this financial year will be more than adequate to cover the government's transfer of $600 million into the New Zealand Superannuation Fund this year.

"For fiscal year 2002-03 the operating balance is forecast to be $2.3 billion compared with the transfer into the Fund of $1.2 billion," Cullen said. "For the out years the operating balances forecast are $3.1 billion and $3.9 billion compared with Fund transfers of $1.8 billion and $2 billion."

Cullen says that is putting New Zealand in a much stronger position for the future.

Net Crown debt is forecast to be around 17% of gross domestic product (GDP) at June 30, 2003 and around 15.5% by the same time 2006. By that time, Cullen said, the super fund will have $1.9 billion and $8.9 billion respectively.

Cullen said that means the Crown's net debt, minus the super fund assets, would be down to 9.3% of GDP by 2006.

He said the surplus in the fund is forecast to equal net debt by 2009/10.

Crown gross debt for the current year is forecast to be $36.3 billion (down from the Defu forecast of $37.1 billion) and $35.8 billion next year (Down from $38.7 billion).

Cullen says the gross debt in forecast 2003-04 will be 28.6% of GDP - down from the 36.8% when the government took office.

He says the government has been able to achieve its objective of reducing gross debt as a percentage of GDP faster than anticipated, despite the recapitalisation of Air New Zealand.

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