Treasury delivered the half year economic and fiscal update (HYEFU) that predicted the Crown’s operating balance before gains and losses would be a deficit of $572 million in the year to June 30, 2015.
In layman’s terms, today’s half-year report card shows the Government is still spending more than it’s collecting.
READ MORE: Deficit a bitter pill for Government
Leading up to the election, even as falling dairy prices meant the economic outlook was weakening, Treasury was forecasting a surplus of $297m.
But today, acting Treasury secretary Vicky Robertson said that the fall in dairy and forestry prices meant it now expected the amount of tax take would be lower than it predicted four months ago.
This comes despite Treasury now expecting net migration to be much stronger than previously, peaking at more than 52,000 early next year.
Although economists had expected today’s statement to point to a deficit, and played down the significance of the change to the wider economy, the news is a blow to the Government as the surplus target has become a politically important measure.
Since 2011 Finance Minister Bill English has promised to return the books to black in 2014-15 after six straight deficits through the global financial crisis and the aftermath of the Canterbury and Christchurch earthquakes.
During the election campaign Prime Minister John Key said repeatedly «we’re in surplus» based on Treasury’s former forecasts.