Massive $7.5 billion surplus shows room for tax cuts and spending

Tuesday, 8 October 2019

Finance Minister Grant Robertson unveiled a massive $7.5 billion surplus.

The Government has taxed its way to its biggest surplus in a decade, finding itself $7.5 billion in the black.

That means nearly one in every $10 collected by the Government on paper unspent on day to day operations, giving it plenty of room for election year tax cuts or increased welfare spending.

And comments today from Finance Minister Grant Robertson appear to show the Government beginning to heed calls for more spending.

But this year's surplus was messy, with $2.6 billion of it coming from a revision to the way Treasury treats KiwiRail - in effect a surplus on paper, and roughly $1 billion coming from a change to the way IRD books taxes.

That still leaves a very healthy surplus of $3.9 billion, which the Government will be happy with, but it will lead to renewed calls for Finance Minister Grant Robertson to loosen the purse strings and stimulate the economy as growth rates start to slow.

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Reserve Bank Governor Adrian Orr joining the calls for incresaed Government stimulus, Robertson now knows he's got the money to heed those calls if he wants to.

It appears he's warming to the idea. Robertson said today that 'fiscal policy has a part to play alongside monetary policy as we manage these challenging global economic conditions'.

But just what form that fiscal stimulus could take looks set to remain a secret until next year's budget.

The accounts leave plenty of money for an election year tax cut, or the Government could choose to implement more of the Welfare Expert Advisory Group's (WEAG) $5 billion wish list of changes to the benefit system.

The good news doesn't stop there.

Robertson will be grinning at debt figures, which were $2.6 billion below forecast, landing at 19.2 per cent of GDP, well below the Government's goal of getting net debt to 20 per cent of GDP by 2021/22.

If net debt is still that low next year, it will give Robertson headroom of roughly $2.5 billion to spend on essential infrastructure like roads, rail, schools and hospitals in the next budget and still meet his 20 per cent target.

Aside from the re-evaluation of KiwiRail and IRD's tax collection, the surplus is largely thanks to a higher than expected tax take.

It's a result of a growing economy that's seen more people in employment, booking pay rises, and businesses making more money.

Tax revenue was up across the board, with Treasury booking more than $2 billion more than it forecast at the budget in May.

Taxes paid by employees were up 7 per cent on last year to $2.2 billion, taxes paid by companies were up 13 per cent to $1.8 billion, and the GST tax take was 5 per cent higher than expected at $1 billion.

Spending is up too. The Government spent $6.4 billion more than last year, the biggest year-on-year increase since 2011. It's mainly a result of the Government getting its big-spending families package out the door, and a $1 billion increase in health spending.

The looming fiscal disaster of superannuation got a little closer too. Spending on superannuation increased by $900 million this year. There are now 767,000 people collecting superannuation, 26,000 more than a year ago.

A black mark on the the numbers was the news DHB deficits had reached $1 billion, mostly due to $700 million worth of liabilities triggered by the Holidays Act.