October 7, 2014 11:00am by David Farrar

Surplus at risk

A plunge in the payout to dairy farmers could put pressure on the government’s target of reaching surplus this year, Prime Minister John Key warned today.

Last week, Fonterra slashed its payout forecast from $6 per kilo of milk solids to $5.30, a move which came before another 7 per cent fall in dairy prices. Economists are now warning that the final payout for Fonterra could fall below $5.

Today, Key admitted the impact on the economy could be $5 billion which would inevitably have “some impact” on the Crown’s books. It was possible that the government would take additional steps to protect its surplus target.

It is a good reminder that we are not yet in surplus – just projected to be. The need for fiscal restraint is as strong as ever – the government needs to keep spending at an affordable level, so that we get back into surplus without tax increases. In fact, so in the future we can boost take home pays with tax cuts.