New Zealand Posts Larger-Than-Expected 2017 Budget Surplus

(Bloomberg) -- New Zealand's budget surplus was larger than expected in the year through June, the Treasury Department said, as political parties vie to form a new government.

The operating surplus was NZ$4.07 billion ($2.9 billion) in the year ended June 30, final government figures published Thursday in Wellington show. That's up from NZ$1.83 billion last year and the Treasury's NZ$3.71 billion projection published in an Aug. 23 pre-election update.

“This better result should be seen as a one-off,” Finance Minister Steven Joyce said in a statement. The increase should be “interpreted with caution, and not seen as automatically flowing through into higher surpluses than forecast in the years ahead,” he said.

Both the ruling National Party and main opposition Labour Party pledged more spending on families and core services in the lead-up to the Sept. 23 general election, which left neither side able to form a government. Preliminary talks to win the backing of the New Zealand First Party, which holds the balance of power, began Thursday.

While expenses were lower than indicated in August, that reflected delays on some capital projects that are likely to occur in 2017-18 and the overall fiscal position hasn't changed significantly, Treasury Secretary Gabriel Makhlouf told a briefing. He said tax revenue was little different from the August projections.

In August, the Treasury projected a NZ$2.87 billion surplus in the current year through June 2018, widening to NZ$3.52 billion in 2018-19. Today's report contains no forecasts.

Softer Indicators

Treasury based its August forecasts “on some reasonably solid growth predictions for the years ahead” but in recent days some economic commentators “have noted a softening of growth indicators,” Joyce said.

In August, the Treasury forecast the economy would grow 3.5 percent in the year through June 2018, adding to signs of a rising government tax take in the near-term, but growth would slow to 2.2 percent by 2021. That would limit the scope for extra spending, Joyce said at the time.

During the election campaign, National promised tax relief and increased assistance for low and middle-income families effective from April 1.

Labour said it will halt the tax package and direct more money toward health, education and social services for those most in need. It said budget surpluses would be slightly smaller under its fiscal plans, while debt would decline at a slower pace.

Net debt was 22.2 percent of gross domestic product at June 30, down from 24.4 percent a year earlier, today's figures show. Nominal net debt fell for the first time since 2008, to NZ$59.5 billion from NZ$61.9 billion.

In the election, National won 58 of the 120 seats in parliament while Labour got 45. New Zealand First has 9 seats and the Greens 7, with ACT New Zealand winning 1. About 380,000 special votes, including overseas ballots, are being counted, and there is a possibility that one or two seats could switch to the center-left when those results are published Oct. 7.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net.