$5.5 billion to spare
● Huge surplus but finance minister warns Government not ‘awash with cash’ ● Comment: Why we shouldn’t use surplus to lower fuel tax ● Teachers’ union says numbers show there’s room to move on pay talks ● Comment: Long and uncertain journey to come for Government
A thriving economy and some delayed spending has sent the Government’s surplus up to $5.5 billion – high enough that it has already met its debt target for 2022.
Treasury released the financial statements for the year to July yesterday, showing exactly how much the Government spent and took in the year prior. A strong tax take of $80.2b saw the operating balance before gains or losses 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.
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 would instead come this year – so the surplus could easily be smaller next year as these ‘‘reverse out’’.
Despite the country’s healthy books, Finance Minister Grant Robertson was keen to make clear that he wasn’t planning a spend-up when talking to media yesterday.
‘‘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 Nationalled Government was 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 rise 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. But Robertson cautioned against too much optimism. 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,’’ Robertson said.
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.
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 everyone can lead a good life.’’
After facing a chorus of doubt about whether he could reach his targets, Finance Minister Grant Robertson has a new kind of problem, not seen for at least a decade. The Crown accounts – the financial statements of the Government – appear to be in such good shape that selling the message of restraint is difficult.
In some ways, the accounts are too good to be true. A surplus of $5.5 billion is the biggest in a decade. While the figure is somewhat deceptive (more than $1b was money the Government wanted to spend but for a variety of reasons did not get around to), the booming tax take was not only stronger than expected, but the source of the money was surprisingly broad.
Companies are earning more (and paying more corporate tax), more people are employed and those people are earning more (meaning more income tax) and consumers are spending more (boosting GST payments).
Robertson is now in a place even he probably thought was unlikely until a few months ago.
In Opposition he, along with the Greens, set what appeared to be an ambitious target, to cut debt to 20 per cent of the size of the economy, by 2022. On the eve of the election this target, and the Budget which Labour proposed to get there, was looking so ambitious that it threatened to be the party’s undoing.
National’s Steven Joyce claimed the plans contained a massive hole, and since the election many commentators have warned that Robertson was unlikely to reach the target and would borrow billions more than he was admitting.
Incredibly, the Government has already cut debt to below 20 per cent of gross domestic product.
As he presented the figures, rather than crow about meeting the goal, Robertson volunteered that this may not last, as the Government has major spending plans in the coming years. The real goal is still to have debt at this level in four years’ time.
The finance minister has very good reason to try to get on the front foot and manage expectations, as he talks up the need to prepare for a rainy day.
Questions have already begun about whether, given the state of the books, Robertson would consider tax cuts or offer relief to motorists paying record prices for petrol. Harder questions will come.
The Government is in negotiations with unions representing teachers – who are, broadly speaking, loyal Labour voters – on a pay settlement.
After spending nine years in Opposition telling teachers, and other public sector workers, that they deserved bigger pay increases, how will Education Minister Chris Hipkins convince the unions that the current $500 million offer is the best he can do?
Even the National Party has begun suggesting the Government has the option to spend more in areas such as teachers’ pay.
Robertson and others have insisted they cannot fix what they see is a major deficit in a single pay round. But compared to the size of the surplus, an improved offer for teachers would feel like it could be lost in the margin of error, from a Government collecting more than $1.5b a week in revenue.
Make no mistake, New Zealand’s books are healthy, but the accounts could be something of a high-water mark, in the medium term at least.
In terms of reaching his debt target, Robertson should consider himself slightly ahead of schedule, but with a long and uncertain journey to come.
The problem with the Government’s plans is that they are based on what could prove to be overly optimistic Treasury forecasts. Effectively, the Government’s bean counters are betting that the recent good times will keep on rolling.
The Government has been taking more in tax than it expected, up until the end of June. But in the months since, business confidence has plunged. How much of that falls at the feet of the Government and how much should be blamed on international factors is, in this context, irrelevant.
The fact remains that there are signs the economy is slowing and although we do not appear to be facing a recession, it is unlikely the accounts will be surprisingly strong in the future. Robertson himself admitted yesterday that if anything, the risks are that the economy will not turn out to be as strong as Treasury has predicted.
If that slowdown comes, tax revenue will grow slowly, but the pressure to spend will continue. This is arguably a better problem to have than when his spending plan was being mocked in the days leading up to the election.
But the weight of expectation after nine years out of government is an ongoing problem for the coalition, and that pressure only increases after the huge surplus of 2018.
Make no mistake, New Zealand’s books are healthy, but the accounts could be something of a highwater mark, in the medium term at least.’’