Budget deficits to widen as global growth stalls

Friday 5th December 2008

New Zealand's budget deficits will probably widen next year as the global economic slump slows tax revenue and the government brings forward spending on infrastructure.

"2009 is going to be a challenging year for everyone, including the government - our books are going to get worse before they get better," Finance Minister Bill English said in a statement.

Treasury figures today show the government's operating balance slumped to a $3.5 billion deficit, $5 billion worse than forecast, reflecting losses on investment in state funds such as the NZ Superannuation Fund. The deficit in the four months ended Oct. 31 resulted from unrealized investment losses as a result of "continuing turmoil in global financial markets," Treasury deputy secretary Peter Bushnell said.

Central bank Governor Alan Bollard yesterday cut the official cash rate by a record 150 basis points to 5% and said the domestic economy may revive somewhat in 2009. English today reiterated National's policies to increase infrastructure spending via a 20-year plan, cut taxes, reform the Resource Management Act and increase the portion of NZ Super Fund invested locally to 40% over time.

The government plans to add A$8.6 billion in new capital projects in the next six years, English said.

Stock markets worldwide have slumped in the past three months amid increasing evidence of a prolonged global recession. The super fund had a larger-than-expected $3.5 billion loss on its investment portfolio. ACC's loss was $600 million and EQC's was $200 million.

The Government Superannuation Fund and ACC also had losses of $1 billion and $400 million respectively after their long-term liabilities were revalued.

The government's cash deficit was $900 million lower than expected at $3.7 billion, reflecting in transferring the $700 million from the previous government's Fast Forward fund and higher-than-expected petroleum mining royalties.

By Jonathan Underhill

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