NZ Treasury Forecasts NZ$572M Deficit in The Year to June 2015

        By Rebecca Howard
        WELLINGTON, New Zealand--The New Zealand government forecast Tuesday that it wouldn't reach a long-promised surplus in the year to June 2015 following a tumble in global dairy prices and low inflation.
        The Treasury's half-year economic and fiscal update show the government will post an operating deficit before gains and losses of 572 million New Zealand dollars (US$443 million) this financial year versus a small surplus of NZ$297 million forecast in a pre-election update last August.
        "For the government, the drop in dairy prices and low inflation mean it will collect less tax than it might otherwise have done," said Vicky Robertson, Treasury acting secretary. The net result is a deficit. Global dairy prices have fallen more than 50% since February and annual inflation is currently running at 1.0%. Dairy forms the backbone of the export-lead economy, with milk products accounting for almost 30% of overseas sales.
        However, "the government believes an Obegal (operating surplus before gains and losses) surplus is achievable this financial year, despite Treasury's latest forecasts," said Finance Minister Bill English.
        "Previous forecasting rounds show the outlook can change significantly between the half-year update and the final accounts being published," he said.
        The deficit figure isn't good news for the New Zealand government, which has consistently reiterated its plan to return the government's accounts to surplus in this financial year.
        The budget has been in deficit since the year to June 2009, largely as a result of a deep recession triggered by the global financial crisis. The government's fiscal position was also affected by a series of devastating earthquakes centered around the country's second largest city of Christchurch.
        The Treasury forecasts now show the government reaching a surplus of NZ$565 million in the year to June 2016.
        The Treasury now sees growth at 3.5% in the 12 months to March 2015 versus a forecast of 3.8% in the pre-election update. The economy is then expected to grow 3.4% in the year to March 2016, up from the prior forecast of 3.0%. Growth will average "almost 3%" over the next five years, said Mr. English.
        The Treasury reiterated that net core government debt is projected to peak at 26.5% of gross domestic product this financial year and reduce to 22.5% of GDP by the year to June 2019.
        Write to Rebecca Howard Rebecca.Howard@wsj.com
        (END) Dow Jones Newswires

        December 15, 2014 19:37 ET (00:37 GMT)

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