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BUDGET: Government surplus meets rating agency expectations

BUDGET: Government surplus meets global rating agency expectations

By Suze Metherell

May 15 (BusinessDesk) – The New Zealand government’s forecast return to surplus in 2015 is in line with expectations of global rating agencies Standard & Poor’s and Moody’s Investors Service and won’t have any immediate bearing on the nation’s sovereign ratings.

Finance Minister Bill English today said the government will achieve a budget surplus in 2015 of $372 million, wider than the $86 million projected in the half year economic and fiscal update. A slower return to cash surplus will see the government issue $3 billion more in bonds to raise $37 billion over the next five years, though net debt is expected to keep declining relative to gross domestic product, falling to 23.8 percent by 2018 from 27.6 percent as at March 31.

Moody’s senior vice president Steven Hess told BusinessDesk that English’s sixth budget was what he’d come to expect and showed a government on track and committed to reducing its debt ratio. Moody’s last reviewed New Zealand’s Aaa rating with a stable outlook in January last year.

“The trends here in this particular budget are quite favourable, therefore we reinforce the Aaa rating we have on New Zealand,” Hess said. “We don’t see big risks to this - of course the big risks are external in the sense of terms of trade, meaning dairy prices and demand for New Zealand exports and those sorts of shocks are always possible.”

English’s budget comes ahead of a general election in September, which would likely see higher taxes imposed on upper income earners and increased government spending if the opposition Labour and Green parties took the Treasury benches.

Still, Moody’s Hess thought it unlikely that a change in government would see any shift in New Zealand’s “fiscal framework”.

“The government always strives to avoid deficits and in fact in the current circumstances reduce the debt levels and even a change in government would not affect that,” Hess said.

S&P, which cut New Zealand’s credit rating in 2011 after the Canterbury earthquakes, said the government was on track to meet its targeted operating surplus in 2015 which would improve the fiscal balance, consistent with its AA foreign currency rating and stable outlook. S&P last reviewed the rating in August.

“The government is consolidating its fiscal position, partly reflecting its ongoing efforts to reduce its cost base while maintaining public services,” the rating agency said in a statement. “It also reflects a favourable economic backdrop, with economic growth robust and the terms of trade very high.”

New Zealand’s budget comes two days after the Australian Federal Budget, which saw Treasurer Joe Hockey announce a deficit estimated at A$49.9 billion for the year ending June 30 and a series of spending cuts on welfare education, boosting the fuel level for motorists and installing a temporary tax on the rich.

“Australia has lower government debt than New Zealand, to start with, and so they can afford to run deficits for a few more years, and they’re very small deficits as a percentage of GDP,” Moody’s Hess said. “Australia has a lot of fiscal flexibility, New Zealand has a bit less because its government debt levels are a bit higher.”

(BusinessDesk)

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