Bye bye surplus?

Bill English has announced:

New Zealand remains on track for solid economic growth, more jobs and rising incomes over the next few years, but falling dairy prices and low inflation will make returning to surplus this year challenging, Finance Minister Bill English says. …

The Government’s annual Budget Policy Statement, which will be issued on 16 December along with Treasury’s Half-Year Economic and Fiscal Update, is being compiled in what are unusual times for global economies.

“Falls in global commodity prices such as oil, forestry and dairy, together with weak international consumer price inflation, are posing challenges for governments and central banks around the world,” Mr English said. “New Zealand is not immune to these global trends.

“This combination of lower commodity prices and low inflation means that the nominal or dollar value of New Zealand’s economic output will not grow as fast as previously expected. This will affect farm and company incomes and we expect this to flow into the Government’s books through lower revenue.

I read this as meaning the HYEFU will project that we will not achieve surplus this year. This will be politically embarrassing for the Government if so. Of course the true test will be what the actual outcome is – which will not be known until September next year.

It is a useful reminder that our surplus is fragile and not yet in existence. Even after 2014/15, the need for fiscal discipline and spending restraint will continue. This is not a time for big spending promises.