18 Dec 2013

Surplus of 'several hundred million' predicted

6:53 am on 18 December 2013

The Government's budget surplus in the year ending June 2015 is likely to be hundreds of millions of dollars, an economist says.

Treasury is forecasting the surplus for that year, excluding capital gains or losses, will be just $86 million, although that is higher than the $75 million forecast in the May budget.

It forecasts the surplus will rise to $1.7 billion in the 2016 year and to $3.1 billion the following year.

Bank of New Zealand head of market economics Stephen Toplis said the risks to those forecasts were all on the upside.

"I guess overall, the environment has improved a little bit. We all know that from the data that we've seen over the last few months, and Treasury has acknowledged that in its forecast, which will give them a slightly higher growth profile," Mr Toplis said.

"That's accompanied by a slightly more robust fiscal position, particularly as you move out into the out years. But they're not dramatic changes by any stretch of the imagination."

Treasury was conceivably being a bit conservative but Mr Toplis said the forecasts were "put to bed" with data from several months ago.

That meant they would not have caught up with the latest momentum as well as Treasury, by necessity, being conservative in their outlook.

The Government's forecasts on the operating balance looked reasonable and, if anything, the balance of risk was that revenue flows would be stronger than forecast so the initial forecast would be larger, he said.

"At the moment it's barely different to zero but I think the possibility of it becoming several hundred million dollars different to zero is quite high."

Treasury's higher growth scenario shows the economy growing by 3.2% in the 12 months ending next March, compared with its central 2.7% forecast.

Treasury then forecasts growth accelerating to 4.4% in the 12 months to March 2015, compared with its central 3.6% forecast.

Under both the central and higher growth scenarios, the unemployment rate is expected to drop below 6% from the March quarter next year.