The Government is tackling this Delta outbreak from a much stronger financial position than Treasury expected earlier in the year.
The Crown accounts were only $4.6 billion in deficit as at June 30, according to the audited accounts for the 2020/21 financial year, released on Tuesday.
This is a smaller deficit than the $15.1 billion deficit forecast by Treasury at the May 20 Budget, and the $23.1 billion deficit reported last year.
The better-than-expected financial position reflects the Government’s tax take being higher than expected, and expenses being lower than expected - thanks to the economy rebounding strongly after lockdown with the help of seismic levels of fiscal and monetary support.
Core Crown tax revenue was 15% higher than the previous year and 7% higher than forecast at the Budget, coming in at $98 billion.
There was also a fall in social security and welfare expenses in 2020/21 after the large increase in 2019/20. Although there was an increase in health and transport spending.
“When this is combined with the improved results from Crown entities and SOEs [state-owned enterprises], there is an improvement in the OBEGAL deficit,” Treasury said.
Indeed, Super Fund and ACC investment portfolios spiked in value as equity markets surged.
The Crown’s net worth increased by 37% to $157.2 billion from the prior year, largely thanks to the value of its land and buildings inflating. The value of land owned by the Government increased by a whopping $12.2 billion over the year.
The graph below shows the magnitude of revaluations in property, plant and equipment (PPE).
Net core Crown debt was worth 30% of gross domestic product (GDP) at June 30, below the 34% forecast at the May Budget.
Finance Minister Grant Robertson said the strength of the books “has given us the fiscal headroom to support businesses and households when the Delta outbreak struck”.
A lot has changed since June 30. The Government on September 16 announced it would need to top up its Covid-19 Response and Recovery Fund by $7 billion, having already put aside $62 billion for the response since the start of the pandemic.
As at Friday, the Government had paid businesses around $3 billion in Wage Subsidies and $974 million in Resurgence Support Payments since the start of the Delta outbreak.
In the 2019/20 year, it spent much more - $12.1 billion - on Wage Subsidies. The benefits of this expenditure were felt in 2020/21, when interest rates were also at record lows.
Robertson said the Government would continue to take a “balanced approach, investing heavily to support wellbeing, our transition to being a low carbon economy and to improve productivity, while carefully managing our resources with an eye to the long-term sustainability of the economy”.
We will find out more about the impact of this Delta outbreak when Treasury releases its Half-Year Economic and Fiscal Update on December 15, and its Debt Management Office updates its forecast debt issuance programme.
Robertson will on December 15 also release his Budget Policy Statement for 2022. He said the Budget will focus on climate change, and the Government’s "various reform programmes". There are health, resource management and three waters reforms underway.
Here are the headline figures from the Crown accounts:
35 Comments
Grant Robertson surely must barely be able to balance his cheque book. And this guy is running NZ's finances. "The strength of the books". Only a Labour Government could say that running deficits (losing money) is a strong point. And "tackling Delta from the stronger financial position Treasury expected" when Treasury expected the position to be negative and it is. How to spin a knob of poo into a gold bar 101. And have media report it as good news. There used to be a time when the media had some idea of what is happening, and knew a bit about what they were reporting on. Sad to say, that time is long gone.
Well, so be it. The next generations will be paying for the printing of money and the borrowing. But I guess you get what you vote for.
if they didn't households and businesses would be plunged deeper and deeper into debt.
I would be surprised if h'hold debt has fallen. I'd say it's likely increased over the P12M. NZ h'hold debt is already near the top of the global rankings on this one. But it's not rugby or the Olympics, so the govt, media, and BBQ guests don't talk about it.
Household net financial wealth has rocketed up over the last two years (https://www.rbnz.govt.nz/statistics/c22). As Audaxes notes below, when Govt spend more than they tax, and trade balances stays the same, then non-Govt financial net worth literally has to increase. It is an accounting certainty. This graph is pretty good at showing how this works. Once you understand this, you start to realise that it is not Govt debt that matters, it is who benefits from the asset it creates!
No - net financial wealth does not include the value of houses or land. The household balance sheet on RBNZ has all details (open the spreadsheet): https://www.rbnz.govt.nz/statistics/c22
When one nets out all the assets and liabilities in the economy, the only thing left – the true basis of a society’s net worth – is the stock of real investment that it has accumulated as a result of prior saving, and its unused endowment of resources. Everything else cancels out because every security represents an asset of the holder and a liability of the issuer. Conceptualizing ‘saved or unconsumed resources’ as broadly as possible, the wealth of a nation consists of its stock of real private investment (e.g. housing, capital goods factories), real public investment (e.g. infrastructure), intangible intellectual capital (e.g. education, inventions, organizational knowledge and systems), and its endowment of basic resources such as land, energy, and water. In an open economy, one would include the net claims on foreigners (negative, in the U.S. case). Understand that securities are not economic wealth. They are a claim of one party in the economy – by virtue of past saving – on the future output produced by others.
– John P. Hussman, Ph.D. (2015) Link
Oh no. No. No. No. Where to begin? Contrary to popular misbelief, a currency-issuing government like ours does not operate its finances like a household. Our government issues the NZ dollar by law and levies taxes in that currency. Amongst other things, this means that a government deficit is a private sector surplus, and vice versa. Not controversial, just an accounting reality. Putting it in simpler terms, a government taking more money in taxes than it issues (a surplus) is a government taking net financial assets from the private sector compared to what it invests in the private sector.
Hilarious - everyone is like 'what about the Govt debt?' whilst Govt has a $40bn(?) net positive financial position! The definition of Crown debt is a complete joke.
Even more hilarious... Govt spent the year using QE to hold down interest rates on its liabilities, which drove investors into shares, which led to huge boosts to the value of Govt-owned financial assets (and Govt net financial position)!
Less hilarious - very clear that Govt under-estimated massively how much of its expenditure would come back as revenue. Sadly, they would rather look fiscally responsible than use their huge fiscal space to address climate change, child poverty, affordable housing etc.
Hilarious - everyone is like 'what about the Govt debt?' whilst Govt has a $40bn(?) net positive financial position!
I know the MMT cult isn't really concerned about govt debt. But I think it's important to remember that Japan has a much higher public debt but it also has a high productive industrial sector and is a net creditor nation. Not saying that Japan is a role model. But the currency has remained resilient, which is important for the Japanese people. And their unique position has enabled Japan not to completely crumble. Comparatively, the NZ economy is based around non-GDP qualifying debt (the housing bubble). The sheeple are convinced NZ is somehow in a better position.
Japan showed that a sovereign state could absolutely control the yield curve, effectively making market interest rates a policy variable. They also demonstrated that the cumulative amount of Govt net spending in the economy (aka Govt debt) is just a number. What matters is not what this number is, but whether Government is competing for real resources with the private sector (creating inflation). Japan also showed (by mistake) that low interest rates do not stimulate the real economy.
Yield curve control (through QE) was then replicated by the EU, UK, US, and more recently Australia and then NZ. Japan is not a unique case at all - economists have just found reasons to believe they are special so that they don't have to admit that their models are crap - they all predict that high levels of Govt debt will lead to inflation, currency being devalued etc etc.
Respectfully, I disagree.
You're missing the point. If you look at the GFC, you will see that JPY strengthened massively as carry trades were unwound on speculative currencies such as NZD and AUD. It's a net creditor nation and Japan is diffrunt whether you like it or not. It is foolish to think that NZ can replicate what Japan has done simply because of sectoral balances and QE.
the public service will be so pleased that their pay was frozen whilst the government aimed for a surplus.
BTW if your struggling to understand why the government is in a bit of a mess at the moment - there is a churn of staff in just about every ministry as public servants on mass are seeking higher paying jobs - a heap of talented people have left for the private sector since June.
That heap of talented people have yet to arrive at INZ. Rephrase that: the minister and his top bureaucrats consistently fail to set a clear objective so the middle managers manage by bureaucratic delay and the poor staff at the interface with applicants learn zero empathy and keep your head down are the only way to survive. Meanwhile everything that is wrong with INZ seems to be great at the passport office - the pleasant efficiency encountered at the passport office can only be achieved with good managers. [Disclosure I have no friends or family at either place].
......a heap of talented people have left for the private sector since June.
Have they? I would be wary of hiring a NZ public servant/ In what capacities are you talking about?
By the way, it wasn't trumpeted to the media, but MPs went back to full salary after they took a 20% paycut after first lockdown.
https://www.rbnz.govt.nz/statistics/d30
Can someone smart explain how this game is being played ?
Holdings of central government debt securities has jumped from 80 billion in August 2019 to 149 billion August 21
So they have increased debt by 69 billion dollars....?
Balance sheets these days are heavily reliant on increased property values which are themselves supported by a small number of transactions in what is now a thinly traded market.
When the market returns to normalised sales volumes, it will be interesting to see just how many buyers there are at these lofty ‘values’.
While there is plenty of ‘patting oneself on the back’ on the way up - I imagine there will be howls of protest and blaming others when the market cools. The transactions at discounted figures will start to form the basis for downward balance sheet revaluations - yet the debt remains. No doubt a change in accounting policy would be in order at that point.
Yes, one simply has to look at the Ownership side of the financial position statement and see what proportion is Revaluation Reserve. That is pure unrealised thin air. It also assumes that the revalued assets can actually be sold......Ok for a private business, where genuine assets do exist. But Gubmints are duffrint........
To be fair, that is a bit selective. Govt financial assets (shares, investments etc, student loans, kiwisaver mortgages) make up as much of the asset side of the balance sheet as property, land etc - and those financial assets are pretty liquid (although inflated like property at the moment). On the liability side of the balance sheet, Govt financial assets are similarly liquid - in fact Govt can literally liquidise bonds, securities etc into money in settlement accounts using QE pretty much whenever it wants.
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