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Petrol tax means Government will reach surplus

Tuesday 18 Dec 2012 11:57 a.m.

The Government is on track to make its political target of a Budget surplus by 2014/15 – but by the skin of its teeth.

The Treasury’s fiscal forecasts out today show a $66 million surplus in 2014/15.

And Finance Minister Bill English has just admitted that if it wasn’t for today’s announcement of increased petrol taxes – 3 cents a year over the next 3 years, raking in hundreds of millions– then the Government would not have made surplus.

A “paper-thin” surplus

So that $66 million means the books will be back in the black – but only just.

That’s good news for Prime Minister John Key and Mr English who have staked their political reputations on balancing the books that year.

But $66 million can only be described as “paper-thin”.

Because today’s figure in the Half-Year Economic and Fiscal Update (HY-EFU) is down even on the forecast in the May Budget of $197 million – and everyone called that “wafer thin”.

You have got to remember that we are dealing in billions here – a tax revenue forecast of $68.9 billion and expenses of $75.6 billion – and the forecast surplus sits in between this.

As John Key said this morning on Firstline, the surplus is a bit like landing an Airbus A380 on a pin head.

Well, I’m sure Treasury analysts would disagree - but you get the picture.

And English’s statement today makes it clear that global events could dent the surplus – think the United States “fiscal cliff” or the Euro-crisis.

So the National Government’s on track for its goal but the best description is perhaps “there or thereabouts”.

It is no wonder that you see the Government trying to save or rake in every penny it can – take Gerry Brownlee’s announcement today that it will be raising petrol taxes to pay for roads.

Government debt – a risk to New Zealand’s credit rating?

On other fronts, the Government’s net debt as a percentage of GDP (its debt as a percentage of the economy) heads up to 29.5 percent by 2014/15.

Now the Beehive has always been worried that hitting 30 percent would cause a credit downgrade – so this is on track, but oh so close too.

Unemployment rate – to fall, but remains high

The unemployment rate is set to peak next year at 6.9 percent.

It is forecast to fall to 6.2 percent in 2014 and 5.9 percent in 2015. English has admitted – that’s not good enough.

Economic growth

The economy is expected to grow. Growth was 1.6 percent in 2011/12. The forecasts show 2.3 percent in 2012/13, 2.9 percent in 2013/14 and 2.5 percent in 2014/15.

Now it is important to note that this is down about 0.5 percent on the growth forecasts in the Budget.

So the economy is expected to grow – just not by as much as six months ago.

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