By Alex Tarrant
The government's core tax revenue was NZ$1.1 billion or 8.2% lower than expected in the three months to September, indicating the economy is recovering more slowly from the recession than expected, Treasury said today when releasing the government's financial accounts.
Coupled with unforeseen costs of around NZ$1.5 billion from the Canterbury earthquake in early September, the government ran an operating balance before gains and losses (OBEGAL) of a deficit of NZ$3.7 billion. This was NZ$2.2 billion higher than the NZ$1.5 billion deficit forecast in the May 2010 budget, Treasury said.
Meanwhile, Treasury did not include a provision for losses under the extended deposit guarantee scheme, which covers seven institutions with total deposits of NZ$2.3 billion.
'Due to more savings' - English
Finance Minister Bill English said the lower tax take was due to lower than expected consumer spending as New Zealanders paid down debt and saved more.
“New Zealanders understand our need to rebalance the economy away from debt and spending towards savings and investment," English said.
“While in the short term this increased saving means slightly lower growth and tax revenue, it is what the economy needs over the long term as we build our future on savings, productive investment and exports," he said.
English said that, in many ways, restraint in the public sector was only just starting.
"We still have a significant medium term challenge to get back into surplus as soon as possible. That is why the Government is committed to spending restraint for the foreseeable future," he said.
Tax take down
Core crown tax revenue of NZ$12.5 billion was down 8.2% from budget forecasts due to lower than expected GST revenue, and lower corporate tax revenues.
"GST revenue was NZ$0.6 billion (15.8%) lower than forecast, mainly due to a smaller than expected boost in consumer spending before October’s GST rate rise," it said in the accounts.
"It is possible that there will be some recovery in the December quarter, given that consumption was not brought forward into the September quarter as much as expected. Evidence suggests that spending in the September quarter continued to be subdued generally."
Treasury said corporate tax revenue was NZ$0.5 billion (22.4%) lower than forecast mostly due to lower than expected provisional tax assessments.
"This suggests that while corporate profits were higher than they were at the same time last year, they were still lower than anticipated."
Crown debt higher than expected
Treasury said gross crown debt was NZ$2.5 billion higher than anticipated, at NZ$59.1 billion.
"However, NZ$1.4 billion of this variance was due to a liability in relation to the Deposit Guarantee Scheme that was subsequently extinguished in October, without impacting net debt."
"Lower than forecast tax receipts contributed to net debt being NZ$0.9 billion higher than expected at NZ$33.8 billion."
Canterbury Earthquake
Treasury said Crown operating expenses included costs associated with the Canterbury earthquake, with the Earthquake Commission (EQC) recording an estimated net cost of NZ$1.5 billion for settling claims for damage arising from the earthquake.
“While the total cost incurred by EQC are likely to exceed this figure, EQC has reinsurance cover for costs above NZ$1.5 billion,” Treasury said.
However, Treasury said the government was committed, in addition, to reimburse a proportion of the restoration costs relating to critical local government infrastructure and certain other costs.
“These costs have not been included in the financial statements at this stage, as reliable estimates of the amounts concerned have not yet been established.”
PM Key doesn't think figures are that different from Budget forecast
Prime Minister John Key later said that at the end of the day New Zealand's economy was still on track for recovery, despite the figures. He did not think the numbers were significantly different from the May Budget forecasts, he said.
"It’s a NZ$180 billion economy - overall revenue from the Crown is in the order of NZ$63 billion or something form memory, the rest we borrow, so it’s not huge," Key said at his post cabinet press conference on Monday afternoon.
"These numbers always move around quite a lot," he said.
"It’s a complex issue, it’s one step at a time, and while it’s a difficult time for New Zealanders, I think we can rest assured that we’re doing a lot better than a lot of other countries, having grown more in the last nine months than in the last four years."
Key said the fall in corporate tax largely reflected business losses from the last year, do to the way the business tax cycle worked.
Will the recovery be slower like Treasury says?
"It depends," Key said.
"The IMF upgraded our growth numbers the other day, so it sort of depends on what number you want to choose.
"In broad terms I don’t think it was a million miles away from what their [Treasury's] prediction was in the budget documents.
Recovery not stalling
Key said there was no indication the recovery was stalling, unlike what the Labour Party had said.
"We saw unemployment falling from 6.9% to 6.4% when it was released last week. Participation rates were higher, we’ve seen business confidence numbers start to regroup," he said.
"What is true is that internationally it’s been slower than anyone predicted – you’ve seen a number of countries going through quite significant austerity packages, not just Greece, but obviously the United Kingdom.
"As we’ve seen in the United States of America, it’s been very stubborn in terms of unemployment numbers sitting at 9.6%. So I think it’s a difficult international environment, but relative to other countries, New Zealand is doing pretty well."
Business confidence
"If you look at the default rates in business, they’re running about a quarter of what they were in 1991 and 92, so in that regard we’re not doing too badly," Key said.
"In terms of confidence numbers, they always are about a prediction of what you think is going to happen in the next six months – they’re quite subjective, so not always the greatest of indicators, but they’re starting to come up a little bit," he said.
Here are Bill English's comments:
The Government remains committed to sound management of its finances and ongoing spending restraint as the economy continues to recover from recession, Finance Minister Bill English says.
Lower than forecast tax revenue alongside the fiscal impact of the Canterbury earthquake contributed to a larger than expected operating deficit before gains and losses of $3.7 billion in the three months to September 30.
"The $1.1 billion lower than forecast tax take is largely the result of lower than expected consumer spending as New Zealanders pay down debt and save more," Mr English says.
"Although the Treasury expects some of the lower tax take to reverse in coming months, it reinforces the need for ongoing fiscal discipline. We've made good progress on getting Government spending growth under control, but this must continue.
"In the past two years we've reprioritised about $4 billion of lower quality spending into more worthwhile inititatives and we've promised to cap future new Budget spending at $1.1 billion.
"However in many ways restraint in the public sector is only just starting. We still have a significant medium term challenge to get back into surplus as soon as possible. That is why the Government is committed to spending restraint for the foreseeable future.
Mr English says the trend away from consumer spending to increased saving contributed to the lower than forecast tax revenue.
“New Zealanders understand our need to rebalance the economy away from debt and spending towards savings and investment.
“While in the short term this increased saving means slightly lower growth and tax revenue, it is what the economy needs over the long term as we build our future on savings, productive investment and exports," Mr English says.
(Updates with PM Key's comments, more on earthquake, English comments.)
31 Comments
I'm so glad we've "exited from the recession" imagine how sick the Govt accounts would be looking otherwise. LOL!
Add it up folks, the Government are pumping about 7%GDP of borrowed money into the economy for a 2% increase in GDP, that's 5% decline in the real economy by my reckoning. This recession hasn't ended by a long way.
But but unemployment fell by half a percent...didn't it.....oh it was just BS.
Meanwhile down on the farms the talk is of a drought taking hold...oh dear oh dear.
It's ok, the farmers will save the fools in wgtn....no they won't...they're feeding the banks.
Maybe maybe if we let the banks feed the bubbles with more hot money...we can all go back to the 05 splurging and pretend this never happened.
Get your "covered bonds...buy em while they're hot"
..and additional with high costs coming in infrastructure to keep up with our daily needs, parliament decided to import most everything in stead of securing/ building skilled jobs and reduce deficit by planning/ building infrastructure locally - right here in NZ with NZcompanies.
..and Bill English, telling Kiwis to safe money, but bright and cheerful he’s mate Steven Joyce shops in foreign countries for all our infrastructure needs – HA what an economy !!!!
I wonder if the Jonkey is starting to regret making that committment that they would not increase the age @ which the state pension can be taken? Its an obvious and very necessary way to cut state spending - lots of other governments have worked it out already.
Ah well it will be forced on them eventually.
Bill English gives a series of tax cuts without cuting any spending, funds it by the borrowing lots of money, and then says "New Zealanders understand our need to rebalance the economy away from debt and spending towards savings and investment". Then the treasury is surprised when tax take is lower than expected!! And people thought Cullan was an idiot - look who is running the country now!
It's not! You know it, I know it but unfortunately It's based on pure speculation, our attractive OCR which is high compared to the US for example and the likelihood of inflation going through the roof here in a few years .
It will get worse. Our OCR will have to increase again and again which encourages MORE & MORE speculation until our economy falls over.
The arrival of the inflation is being held back by the higher Kiwi...but the Kiwi will hammer the exports and what else is there...nothing...so down goes the economic promise of the rural sector saving the wgtn fools...which means ongoing falling revenue and expanding expenditure.....ending in a massive fiscal hole...filled with yet more borrowing from Ben....until finally the lying ratings agencies report the problem and up up up goes the cost of all that hot foreign loot...which leads to much higher interest rates...explosive mortgagee listings...rural failures....govt raising taxes and cutting spending....Hello Mr Market...which pointy head will you chop off first?
Here's a different slant on it , cut government spending . Allow the productive sector to keep more of it's profits . Get the economy growing .
As much as some rail against Don Brash's 2025 Taskforce , the guy is right , we need smaller government and a more robust private sector .
If there were unlimited opportunities to 'get the economy growing', it wouldn't matter what the Governing of the country cost.
Since the mid-eighties, and even earlier really, there have been less and less opportunities for 'growth', and so the conventionally-taught 'economists', look to their conventional teachings, and try to rule out the 'downsides' .
In a way it's right - there isn't the underwriting left on the planet to support the level of consumption we all currently expect, and one way that will have to be catered for is reduced wages and salaries.
It won't help the taxpayer that the Govt wage bill is less though, because the taxpayer will be taking home less too. Alle sinkee same deck.
Meanwhile the senior civil serpents get pay rises and they need them because it's dam hard work deciding which private sector consultants are needed to produce management plans for the departments..not the sort of job for those paid to do that job...get the consultants in...who gives a hoot about the cost...
And so we follow the same old same old on into 2011 in time to wallow in the political bullshit from both sides right up to the election. Then you can expect at the start of 2012 to be exactly where you were at the start of 2009...deeply in debt and living on BS dressed up with spin
Now the peasants get to know what it's like to be sheep...being farmed by the banks for an endless stream of money because they were dumb enough to borrow. The banks know what to do...they'll have your fleece off in a flash for the cash...off you go with the bloody cuts and grow another fleece...see you in a month sucker.
Bolly's there to give the banks all the help they need..they can't lose....haaaaaaaahahaha
I so agree with you Bolly. I would love to see a "lower salaries commission" that was tasked with dropping the wages of the upper level managers in NZ. Also, with all of the unemployed managers floating around, why don't we start hiring them for bugger all- say $40,000 per year and just get rid of the managers who want $$300,000 per year in salaries. Here in Dunedin, our Jim Harland manager is on something like $400,000 per year and he is scratching his head trying to figure out how to cut costs! (yeah right!) What poor buggers on $35,000 with a wife/husband, kid and mortgage can he give the boot to? If we got rid of our expensive managerial class we would be much better off. How would life go on you might ask? Let their secretaries take over their jobs- they will be doing most of it already anyhow!
People at the bottom would be much happiert if they were not the only people bearing the brunt of the downturn. People are not so much annoyed that life is harder- they are annoyed because life is only harder for some. It is the disparity that is wrong and unfair.
There are many of us who have been arguing against WFF ever since Cullen used it as a ploy to defeat Brash , in 2005 . That 1999-2008 Labour government increased it's spending by 50 % . How much did the economy grow by , over those 9 years ? The government has eaten the economy of New Zealand . National have merely slowed the rate of increase in government spending , not stopped it , least yet reduced the government's take of NZ's GDP .
NZ is living beyond it's means . You are going bankrupt .
Hi Justice
I have three kids, no WFF for me
Its a bit pathetic that people choose to have more kids just because it's financially rewarding ie. DPB and 2nd/3rd kids WFF
We need to stop the 2-3 billion we spend on WFF a year and increase the returement age to 68 and think about means testing
regards
we need to have less kids.
My partner and I talked long and hard over whether to cheekily have 2 (replacement) or one, or none. Many of our contemporaries, who realised where it was going, decided to do their bit and have none.
If we halved the population, we'd have twice the resources, twice the coastline, twice the everything, per head.
Economics doesn't teach that (it seems to suggest that when we are standing shoulder-to-shoulder, we'll be rich as anything....
- which means it's fatally flawed construct.
"Prime Minister John Key later said that at the end of the day New Zealand's economy was still on track for recovery".....some time over the next twenty years.
Bye the bye...the higher the Kiwi can fly v the US$ the easier it is for the repayment of any USdollar loans...given the greenback is set to slide into the poo it might be best to wait before repaying the loans...ditto the Yen could soon do a woopsee and turn into a turd...paying back Mrs Watanabe only a third. The Euro is about to run smack into the Irish question and it will be QE for them as well...down goes the Euro...pay back those Belgian dentists. That only leaves the Pound and the Poms are determined not to miss the QE party...
We could do quite well out of this fiasco.
Oh yeah...we have to earn it before we can repay it...gosh darn I was starting to think like Cunliffe...speaking of fools, this is what he had to say about the poor gst take... "because Kiwis don't have money left over at the end of the week to spend"....now that's mind shattering stuff...pity he didn't go on to explain how he was a member of the Labour Team that encouraged property to become seriously unaffordable with stupid and poorly thought out tax policy in a deliberate move to pork the vote in 05....but then Cunliffe has a very selective memory....that recall would have helped him understand why the peasants "don't have any money left over"...it's all gone to the landlord or the bank...well done that fool.
The "Government spending" proportion of GNP is nothing more than an opportunity for politicians to create artificial recoveries by spending money. This is because it is measured simply as $1 spent by the govt, is $1 more added to GNP.
There simply is no justification for any assumption that the government $1 spent is equal in value to each $1 NON government portion of GNP.
The bigger the govt "share of GNP" the worse this gets.
It is also completely false to assume that a government employee on $100,000 per year is "worth" anything LIKE as much to the economy as someone in the private sector on the same earnings.
I wish there was some standard accepted statistical modification that took this into account. Because there is not, our economies go further and further into la-la land, with the statistics actually looking not too bad - thanks to that $1 government spending "IS" $1 of GNP assumption.
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