By Bernard Hickey
Finance Minister Bill English has warned again that the Government's target of reaching surplus in the current 2014/15 was being challenged after fresh Treasury figures showed weaker than forecast revenues in the first four months of the year.
Treasury reported the Government's Operating Balance before gains and losses in the four months to October was NZ$1 billion, which was NZ$260 million more than Treasury's May Budget forecast because of lower than expected revenues and higher spending.
These latest Crown Accounts will put more pressure on the Government's long forecast return to surplus in the current 2014/15 year.
Finance Minister Bill English has been saying since late September the surplus forecast faced challenges and Prime Minister John Key has acknowledged that next Tuesday's Half Yearly Fiscal and Economic Update (HYEFU) may show a deficit forecast, although he was confident of an eventual surplus once the figures were finalised in late 2015.
However, Treasury reported revenues were 8% ahead of the same period a year ago and were running ahead of Treasury's August 16 Pre-Election Fiscal Update (PREFU), it said.
But it noted this was unlikely to continue because of the slump in dairy payouts and lower than expected inflation.
Core Crown tax revenue was NZ$97 million (0.5%) lower than the May Budget forecast with both GST and PAYE income tax deductions being lower than expected (NZ$200 million and NZ$75 million respectively), "which is expected to be a permanent difference."
Treasury said other individuals and corporate tax receipts were more than expected (NZ$70 million and NZ$129 million respectively).
Core Crown expenses were NZ$118 million or 0.5% higher than forecast at NZ$24.0 billion, due largely to the Government's agreement to a NZ$103 million deed of indemnity to Solid Energy to keep it solvent.
'Challenging conditions'
"This emphasises the unusual conditions the New Zealand economy is experiencing," English said.
"We have stable growth, growing employment, and low interest rates, which are helping New Zealanders to get ahead. But at the same time, falling dairy prices and low inflation are impacting on the nominal economy and government revenue," he said.
"This is making it more challenging for the Government to achieve its fiscal targets as quickly as it would like."
Labour Finance Spokesman Grant Robertson said the Government's surplus target was under threat.
“It is two blows in one morning for the Government’s economic credibility after Fonterra’s dairy payout was slashed, leaving a $6 billion hole in the economy," Robertson said.
“The Government has promised a ‘meaningful’ surplus in 2014/15 and campaigned on it for two elections in a row. This election the Government said the surplus would be almost $300 million. If Bill English is unable to provide that he will have broken John Key’s primary election promise," he said.
“The bitter truth is the tax take is down on forecast because wages are not growing as fast as promised. That makes a mockery of John Key’s claim to be ‘working for New Zealanders’."
(Updated with comments from Bill English and Grant Robertson.)
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8 Comments
These latest Crown Accounts will put more pressure on the Government's long forecast return to surplus in the current 2014/15 year.
Government debt issuance to finance said deficit has risen quite sharply in recent months after a small period of net redemption - It sure looks to be a third term of signifcant reliance on borrowed money for the Nats. Vicious circles are always impossible to exit despite the fact the finance minister always claims otherwise.
Stephen H,
Thanks for the link. You may or may not agree, but the government borrowing offshore to fund a domestic deficit seems absolutely ludicrous to me at a time when consumer inflation is close to zero. That the government has a deficit would not particularly stress me assuming they were not being especially wasteful with spending, and if the funding was domestic- either direct from the RBNZ if macro economic circumstances warrant it, or borrowed domestically if not. The foreign borrowing is another vicious cycle kick to the trading economy through the exchange rate, and through foreign interest payments that seem totally counter productive.
Both Treasury and Bill English seem stuck in a paradigm that the rest of the world has moved on from, and where the rest of the world is taking advantage of us.
You are of course correct to point out the asset bubbles going on; but encouraging foreign money in just exacerbates those.
The dairy payout will have a negative effect on spending in the economy , thats a sure bet .
I have a question :- Where's this inflation everyone is talking about ?
I dont see it at all
On a personall level , we as a family have saved more in the Bank in the past 12 months than our entire lives .
Our cost of living has fallen below 2013 levels and income has increased only slightly , AND we are able to save .
We have seen stable or falling food prices ,( weekly shop at Pak.Save lower this year) online clothing prices at 1/3 rd the price of the local stores, a falling petrol and diesel account ( BP Fuelcard) , level energy bill ( Genesis GAS went up and then down again and electricity was flat ) , and our rates have gone down in the past 3 years by $220 per annum .
We bought a car in 2014 for less than the last car cost in early 2008 !
Interest costs over the past 7 years have been so low we paid off our mortgage two years ago by keeping the same payments as when mortgages were 10% plus .
Frankly , we have never had it so good , and wonder if it can last
I have a question :- Where's this inflation everyone is talking about ?
I dont see it at all
Depends on the type of inflation you are looking for - the central bank QE generated "risk on" asset value variant is booming all around you.
House prices continued rising in November with the the Real Estate Institute of New Zealand's national median price setting a new record of $455,750, which was up 6% compared to October and up 7.2% compared with November last year. Read more
Neither Bill or Grant have a clue.......you didn't get the increases in taxes because your regulators got their foot in the door first and any tax monies were sucked up in legislative, regulatory compliance costs as businesses prepared for the plethora of changes being introduced !!!!
Now Bill seriously if you want a hand in getting that budget of yours back in order give me a ring........I am also sure that my methods will help the problem you have with those Auckland house prices........two birds with one stone!!
I have 2 questions,
Where does boatman live?" and our rates have gone down in the past 3 years by $220 per annum ".
The other is how come his council is so well run that they are able to decrease rates yet other councils can't do the same. Maybe all the other coucils should be looking at how his council operates!
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