No quick turnaround for Government accounts as annual deficit climbs by $3.4b

Thursday, 10 October 2024

Finance Minister Nicola Willis says New Zealand's government accounts are 'sobering.' She emphasized the requirement for fiscal restraint and the cleaning up of the country's finances in order for the government to live within its means.

Finance Minister Nicola Willis says the Government's annual accounts published today are “sobering” and show its books are not in great shape.

The Government's annual operating deficit blew out to nearly $12.9 billion in the year to June, up $3.4b on the prior year and $1.8b more than forecast in the May Budget.

Willis blamed the Budget miss on worse-than-expected results from state-owned enterprises and Crown entities, rather than the performance of “core” government departments.

Net core Crown debt, which is the Government's preferred measure of government debt, jumped by just over $20b over the year to hit $175b.

It came in about $2.5b below the Budget forecast.

But Infometrics principal economist Brad Olsen said that was only due to the timing of some tax payments, with $2.8b of tax payments being made before Matariki rather than after Matariki, which fell at the end of the accounting period.

“The net debt position could have been a lot worse and looks like it will be a lot worse next year,” he said.

“People just decided to pay their tax before the Matariki weekend and because of that the Government got nearly $3b extra.”

The Government’s operating deficit for the year to June was $1.8b worse than forecast in the Budget.

The Government has now run operating (Obegal) deficits for the past five years and the Treasury is expecting another three years of losses before getting its books back into balance, during which time it expects net core Crown debt to have ballooned from $58b in June 2019 to $207b in June 2027.

Willis indicated the Government was still committed to getting back to surplus in the year ending June 2028.

But Olsen said this year's accounts raised a further question over whether that target would be achieved.

Willis said the Crown accounts showed the “corrosive impact of low growth and productivity” on the Government's financial performance, as low growth both limited tax revenues and increased some government expenses.

The Government was determined to drive economic growth, she said.

Acting Treasury secretary Struan Little noted falling business profits had impacted the company tax revenue.

Fiscal discipline would need to be restored to bring revenues and expenses back into balance and containing expenses was important, but “our most important job is to grow the economy faster”, she said.

Core Crown tax revenue increased $8.2b in the year to June, from the previous year, to top $120b. But the deficit worsened because core Crown expenses rose at a faster rate, climbing $11.4b to reach $139b.

While some of the increase in expenses was “temporary” and related to the costs imposed by the extreme weather events last year, there were permanent increases in other areas, Willis said.

“The Government is committed to improving the books, which I am very confident will be reflected in financial statements to come.”

Acting secretary to the Treasury Struan Little noted that despite the overall 7.3% increase in the tax take, company tax receipts fell $1.1b from last year, which 'largely reflected weaker business profits'.

Olsen said the Crown accounts reflected decisions made by a number of governments, but the fact that government spending since the Budget had been $4.3b higher than forecast in the Budget suggested some spending was “not as under control cost-wise as I think people would expect”.

He pointed in particular to spending on health and unplanned spending in education.