Crown accounts show relative calm before the 'global economic storm'

Thursday, 1 December 2022

Tax revenue forecasts in the May budget have proved almost bang on.

The Government’s finances are close to the shape the Treasury had expected them to be in when it released its last forecast in the May budget.

But its net debt is $3.5 billion above target and Finance Minister Grant Robertson indicated it needed to brace for the impact of the expected recession next year.

Robertson said the Government’s accounts were in “a solid position”.

“The economy is continuing to show its resilience even as global economic storm clouds gather.”

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But he said the “sobering reality” was that global growth was slowing and New Zealand “will not escape its impact, with forecasts of a shallow recession next year”.

“The deteriorating global situation will flow through to the Government’s books,” he said.

Robertson said the Treasury’s Half Year Fiscal and Economic Update (HYEFU) on December 14 would “provide more detail on its likely impact on New Zealand, but the direction of travel is clear”.

Government spending as a percentage of GDP was already expected to fall, but “tough choices” would be required on the pathway back to surplus, he said.

The May budget pencilled in a return to surplus in the year to June 2025. It will become clear when the Treasury releases its HYEFU later this month, whether it now expects that will need to be pushed back.

Treasury reported that Government had an operating deficit of $2.8b for the four months to the end of October, which was a $274m improvement on its Budget forecast.

Its forecast for how much tax revenue Inland Revenue would bring in was almost ‘bang on’, with receipts of $36.2 billion just $62m below forecast.

Government expenses were $515m higher than forecast.

The blot in the October accounts was the higher net debt, which was partly caused by a fall in the value of the NZ Super Fund’s investments and other losses sustained as a direct or indirect result of higher interest rates.

The Government’s net debt at the end of October stood at 19.5% of GDP, whereas the Treasury had forecast that it would be 18.5%.

The net debt figure would instead have been better than forecast, had the Government not changed the way it calculated the figure earlier this year to take into account broader assets and liabilities, such as the value of investments accumulated by the Super fund.

The Government has set a ceiling on government debt at 30% of GDP under its new debt measure.