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New Zealand doubles budget surplus forecast, cuts GDP growth projections
August 23, 2017 / 12:39 AM / a month ago

New Zealand doubles budget surplus forecast, cuts GDP growth projections

FILE PHOTO - Construction workers unload equipment at a building site for a residential apartment block in central Wellington, New Zealand, July 3, 2017. Picture taken July 3, 2017. REUTERS/David Gray /File photo

WELLINGTON (Reuters) - The New Zealand government more than doubled its budget surplus forecast this year but cut growth forecasts in a spending update on Wednesday, flagging that the country’s next government will have less spare cash.

The update comes a month before New Zealand goes to the polls on Sept. 23 to elect a new government, in what is becoming a close race between the incumbent conservative National Party and its centrist Labour Party challenger.

Labour has surged in the polls since 37-year-old Jacinda Ardern took the party leadership less than a month ago in a gamble aimed at energizing its campaign to unseat Prime Minister Bill English and his National Party-led coalition.

The bad news for both sides is that while the latest fiscal numbers look good on international comparisons, they’re unlikely to give political parties the capacity to deliver on vote-catching campaign promises.

“Those looking for Treasury to announce that there was money to burn ... will be very disappointed,” BNZ Head of Research Stephen Toplis said in a note.

“There were many who had assumed that the recent windfall gains that were flowing into tax revenues would provide the base for a much stronger future revenue track: They didn‘t.”

The Treasury raised its budget surplus forecast for 2016/17 to NZ$3.706 billion ($2.3 billion), boosted by a spike in corporate tax revenues, well above the NZ$1.62 billion surplus it forecast in May.

It reduced its economic growth calculation for the year to June to 2.6 percent from 3.2 percent previously, and cut its growth projection to 3.5 percent in the year to June 2018 from 3.7 percent in the May budget update.

The New Zealand dollar NZD=D4 slumped to a one-week low of $0.7232 against the U.S. dollar and a 3-1/2-month trough on its Australian cousin after the Treasury update.

MORE CAUTION

New Zealand has been among the fastest-growing developed economies in recent years, but first-quarter growth undershot expectations as construction output fell for the first time in two years.

The Treasury said strong population growth, a better international economy, and fiscal and monetary stimulus would continue to underpin growth, but capacity constraints would weigh on its projections.

“They’ve basically decided they were a little bullish perhaps in the budget around some of the constraints in the construction sector,” Finance Minister Steven Joyce told reporters, referring to previous Treasury forecasts.

Joyce said the revisions meant another round of tax cuts would not be possible until 2020, but the Nationals still planned to extend a flagship program slated for 2018 to reduce income tax and increase government transfers to households.

Phil Borkin, senior economist at ANZ, told Reuters the Treasury was right to take a more cautious view on the growth outlook, noting: “On our numbers we think the Treasury is still being a little too optimistic.”

Reporting by Charlotte Greenfield and Ana Nicolaci da Costa; Additional reporting by Swati Pandey in Sydney; Writing by Jane Wardell; Editing by Eric Meijer

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