WELLINGTON • The New Zealand government more than doubled its forecast for a budget surplus in 2016/2017 on a one-off spike in tax revenues, even as it cut its growth calculations for this fiscal year and next.
The government raised its budget surplus forecast to NZ$3.706 billion (S$3.65 billion) in the year to June because of strong corporate tax revenues, up from a prior forecast of NZ$1.62 billion in its May budget economic and fiscal update.
But it reduced its economic growth calculation for the year to June to 2.6 per cent from 3.2 per cent previously, and cut its growth projection of 3.5 per cent in the year to June next year from 3.7 per cent in the May budget update.
The New Zealand dollar tumbled to a one-week low against its United States counterpart and a 31/2 month trough on its Australian cousin in the wake of the downgrade.
The Aussie, which has benefited from strong metals prices, took advantage of the kiwi's woes and climbed to NZ$1.0907, a level not seen since May 2.
Against the greenback, the New Zealand dollar yesterday sank to a one-week trough of US$0.7232 from a high of US$0.7951 in the previous session.
Overall, we've seen a slightly softer growth story but not markedly, just slightly softer over the four-year track.
FINANCE MINISTER STEVEN JOYCE.
"The US dollar strengthened overnight, driven by speculation that the Trump administration will soon reform the tax code," ANZ Research's Giulia Specchia said.
Yesterday's budget surplus will be a welcome windfall for the National Party government only weeks before a Sept 23 election that has become tightly contested after a change in leadership boosted support for the Labour Party.
Finance Minister Steven Joyce said: "Overall, we've seen a slightly softer growth story but not markedly, just slightly softer over the four-year track."
New Zealand has been among the fastest-growing developed economies in recent years, but first-quarter growth undershot expectations as construction output fell for the first time in two years.
The Treasury said strong population growth, a better international economy and fiscal and monetary stimulus would continue to underpin growth, but cut its growth projections for this fiscal year and next owing to capacity constraints.
"They've basically decided they were a little bullish perhaps in the budget around some of the constraints in the construction sector," Mr Joyce said, referring to previous Treasury forecasts.
If maintained, robust growth would allow the National Party to potentially announce a second family package in 2020 if it retained power in September's election, he added.
A family package, which reduces income tax and increases government transfers to households, was announced in the May budget update and is due to take effect on April 1 next year.