Government's surplus grows so substantially it hits 2022 debt target early

Tuesday, 9 October 2018

A thriving economy and some delayed spending has sent the surplus up to $5.5 billion, high enough that the Government has already met its debt target for 2022.

Treasury released the financial statements for the year to July on Tuesday, showing exactly how much the Government spent and took in the year prior.

This is the first official check that the new Coalition government is spending what it said it would.

A strong tax take of $80.2b saw the operating balance before gains or losses (OBEGAL) surplus rise to $5.5b, a full $2.4b higher than what Treasury projected in the May Budget and $1.4b higher than the year prior.

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While Crown expenses were on the up too, the tax take was rising higher - mostly as a result of higher average wages, higher employment, and higher corporate profits. 

Some of this higher-than-expected surplus can also be explained by one-off factors, which led to core crown spending coming in 1.4 per cent lower than expected - although still higher than the year before.

Treasury said this was largely due to timing issues, meaning some of the spending they expected to come last year will instead come this year - so the surplus could easily be smaller next year as these 'reverse out'.

Despite the healthy books, Finance Minister Grant Robertson was keen to make clear that he wasn't planning a spend-up when talking to media on Tuesday.

'I don't think we're awash with cash. The situation is the Government's books are in good order,' Robertson said.

The period covered includes four months where the National-led Government were in charge and eight months when the Coalition Government reigned.

It takes in spending included in the Coalition Government's 'mini-Budget' like free tertiary education, but most of the raise in spending was due to the increased population and a higher number of people collecting superannuation as the population aged.

The tax take and economic growth was so strong that the Government has already met its 2022 Budget Responsibility Rule target of getting net debt down to below 20 per cent of GDP - it was down to 19.9 per cent of GDP, or $57.5b.

That target has been criticised as too stringent by those who argue the Government should be spending more on infrastructure and housing.

Notably, the crown entity sector was not in surplus but in $0.8b of deficit, mostly because of ACC and EQC expenses.

Robertson noted that while the economic figures were now quite out of date, the Government had seen further encouraging economic figures since July.

But he cautioned against too much optimism.

'It is a good result. But I do want to remind people that one of the key drivers of this was timing issues,' Robertson said. 

'We expect that there will be fluctuations above this target in the coming years.'

Robertson said he was keen to keep money in the kitty for a 'classic rainy day scenario' - noting that the $800m Mycoplasma Bovis bill did not fall within the accounting period.

'Economists have been warning about growing risks in the international economy, particularly due to rising trade protectionism, which we need to be well-placed to face in case this flows through to the New Zealand economy,' Robertson said.

He noted that the Government was keen to invest much more than the previous Government over the coming years.

Robertson also addressed record-low figures from business confidence surveys, which do not have a particularly strong relationship with actual economic growth.

'We'll continue to work close with the business community to make sure they understand our Government's agenda - the fundamentals of the New Zealand economy are strong,' Robertson said.

He said the business confidence figures were not keeping him up at night but was watching them.

National party leader Simon Bridges said the surplus showed the Government should have gone ahead with his party's planned tax cuts.

'This is a Government that cancelled National's $1000 tax cuts for hardworking New Zealanders on the average wage so that it could spend more. This result shows that was the wrong choice,' Bridges said.

'New Zealanders can't afford this raid on their back pockets all so the Government can waste their hard earned money on wasteful and untargeted spending.'

'It is good to see net debt falling. That result is a testament to National's solid management of the books for the past nine years. Indeed the result would be even better if the Government hadn't wasted money on poor spending decisions like the tertiary fees free policy.'

Bridges also called on the Government to reverse a 4c/litre increases in fuel excise tax.

Fuel taxes go into a separate ring-fenced pot from other Government spending to be spent solely on transport.

The fuel tax take was actually slightly down on the year prior- $1.898b compared to $1.908b in 2017.

Green Party co-leader James Shaw said the surplus showed the Government should be spending more on wellbeing.

'This better paves the way for us to press ahead with a true Wellbeing Budget that focuses on the wellbeing of New Zealanders so that everyone can lead a good life,' Shaw said.

'The Green Party will push strongly for a true Wellbeing Budget that reduces inequality and reduces our environmental footprint. We need to ensure no one gets left behind as we tackle the big challenges of protecting our environment'.

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