With the recession slicing billions off Govt revenue, the Govt faces an operating deficit of $6.2bn (an $8.4bn deterioration from before the election). Besides tax revenue falling, many Crown agencies are seeing their revenue dropping off. Though the Crown’s debt level is currently quite low (2.3% of GDP), on current assumptions the Govt will have to borrow $40bn over the next three years. This will more than double the stock of debt. The Govt is already working hard on plans to fund the looming deficit. Treasury and Reserve Bank officials who were sent on a mission round investment capitals earlier this year are building relationships with financial institutions to facilitate the prospective borrowing programme.

Some authorities are urging the Govt to forgo contributions to the Cullen Superannuation Fund. John Key has not ruled this out, though he says Cabinet has not considered it. The legislation leaves the opportunity for a “contribution” holiday open. The issue has created a division among the Govt’s coalition partners, with ACT arguing there is no point in borrowing money merely to transfer it into the Cullen Fund, while United Future insists there should be no tampering with the fund. Another option might be to look again at pre-funding ACC’s liabilities, which has led to the accumulation of $9.5bn in ACC funds. Some authorities see it as adding unnecessarily to the Govt’s fiscal burden if it has to borrow for pre-funding, let alone plug the $1bn hole in the non-earners’ account.

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