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Deficit higher than forecast and expected to climb

Monday 4th April 2011

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A $1.7 billion higher than forecast deficit is partly due to the Christchurch earthquake and its impact will continue to be felt in future deficit figures, Finance Minister Bill English says.

Treasury released the Government accounts for the eight months to February.

English said the quake and revisions to expected Crown recoveries under the Retail Deposit Guarantee Scheme were reflected in the accounts.

"The accounts do not include the full costs of the earthquake, but they do include an estimate of the Earthquake Commission's net cost of $1.5 billion," English said.

"This is the main reason for the operating deficit before gains and losses coming in $1.7 billion higher than forecast at $9.2 billion for the eight months.

"Additional earthquake-related costs will be included in coming months when they can be quantified and as further decisions are made about the earthquake recovery."

The accounts also included a $331 million increase in the Government's expected loss from the Retail Deposit Guarantee Scheme, which covered eligible depositors in failed financial institutions.

"Most of this is attributable to a reduction in expected related party loan recoveries from the receivership of South Canterbury Finance," English said.

"The receiver has provided updated information on South Canterbury's lending business not available previously.

"In addition, the expected effect of the latest Canterbury earthquake has been factored into likely recoveries."

The Government expected a net loss from the Retail Deposit Guarantee Scheme of around $1.2 billion, compared with earlier estimates of around $900 million, he said.

The significant extra one-off costs would add to what was already shaping as a large deficit in the current financial year.

"The deficit forecasts will be updated in the budget on May 19. They will reinforce the need for the Government to carefully consider its spending priorities and set a credible path back to budget surplus. Only then can we begin repaying our debt and building a buffer against the next economic shock."

The Government would continue to focus on reducing overseas debt and improving growth and savings.

"On a positive note, the operating balance after gains and losses was $2.5 billion in the eight months to February - about $3.5 billion better than forecast. This reflected strong investment gains by the New Zealand Superannuation Fund and ACC, along with actuarial gains on ACC and Government Superannuation Fund liabilities."



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