N.Z.’s English Says Dairy Price Slump Makes Surplus a Challenge

New Zealand Finance Minister Bill English said slumping commodity prices will reduce economic output and curb tax revenue, making it more difficult for the government to deliver a budget surplus this year.

“Falling dairy prices and low inflation will make returning to surplus this year challenging,” English said in a speech in Auckland today, according to an e-mailed statement. “The nominal or dollar value of New Zealand’s economic output will not grow as fast as previously expected. This will affect farm and company incomes and we expect this to flow into the government’s books through lower revenue.”

English and Prime Minister John Key promised a return to surplus this fiscal year during the campaign for the Sept. 20 election, at which they won a third term in office. The government’s annual Budget Policy Statement will be published Dec. 16 along with the Treasury’s latest forecasts.

“The unusual current combination of economic circumstances is likely to have an impact on these updated forecasts,” English said. “As we’ve said all along, returning to surplus this year will be a challenge. But we believe the strength of the economy and constrained government spending can deliver a surplus when the final accounts are published late next year.”

In a pre-election update on Aug. 19, the Treasury forecast growth of 3.6 percent in the year through March 2015. It predicted an operating surplus of NZ$297 million ($233 million) in the year through June 2015, which would be the first in seven years.

Prices for dairy products, New Zealand’s biggest export, have slumped this year, curbing farm incomes. The average price of whole milk powder fell to $2,400 a metric ton at an auction this week, down from a peak of $5,005 in February.

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