By Bernard Hickey
The Government's books have surprisingly returned to surplus in the seven months to January, which is the first time Treasury has recorded a surplus since 2009.
Finance Minister Bill English said it was too early to declare victory in the National's Government's four-year long quest for surplus in the full 2014/15 year, but it showed the underlying improvements in the Government's finances.
Treasury reported the Government recorded an operating balance before gains and losses (OBEGAL) of a surplus of NZ$77 million in the seven months to the end of January, which was NZ$712 million better than forecast by the Treasury in December.
Core crown tax revenues were NZ$456 million better than forecast, due mainly to higher than expected corporate tax and PAYE receipts, while GST was NZ$95 million lower than expected because of larger refunds to insurers than expected. Spending was NZ$249 million lower than forecast.
The result will please the Government, which has pledged since 2011 to return the budget to surplus in the current 2014/15 year. Treasury forecast in December the budget would still be in deficit by NZ$572 million, but Finance Minister Bill English has expressed confidence that a surplus would be recorded by the time the accounts are finalised in October.
As recently as yesterday, English was saying it would be difficult to achieve a surplus given inflation was low and headed towards zero, which reduced the growth in the tax base.
Treasury reported corporate taxes were NZ$158 million greater than expected in the first six months, while other individuals' tax (provisional tax) was also NZ$158 million above forecasts, and other source deductions (PAYE) were NZ$146 million above forecasts. Treasury said it was unclear if the provisional tax receipts would continue to be strong for the rest of the year, while the strength in corporate taxes was expected to continue. The higher PAYE receipts were consistent with the strength in the labour market, Treasury reported.
Treasury said the largest reductions in Government spending were due to lower than expected applications for grants and subsidies and delays in finalising treaty settlements.
'Difference between two large numbers'
"This is the first time the Government's books have shown a part-year surplus since 2009," English said.
"Although it is too early to say whether we will have a surplus for the full 2014/15 year, this result demonstrates the strides we have made in improving the Government's finances," he said.
"Although corporate tax and source deductions were both ahead of forecast for the seven months to January, these latest figures underscore the difficulty in forecasting the difference between two large numbers. We won't know until the final accounts are published in October whether we will achieve a surplus for the whole year. The variance of both tax and expenditure from forecasts reinforces that message."
Later, English told Parliament and reporters that a surplus for the current year was now more likely than when the Treasury updated its forecasts in December, but that it was likely to dip back into deficit in the coming months.
"The officials' advice is that that will drop off afterwards, but it's a nice little milestone along the way to actually record a surplus," English said.
"The question now is whether it stays in surplus. Usually it tails off a bit from January through to June," he said.
(Updated with more details, English comments, chart)
No chart with that title exists.
29 Comments
I'm not sure if I am more worried that Treasury forecast was $712m out or that govt have been fufging the edges of figures to hit the stated surplus target...such as delays in finalising treaty settlements. - to me this read as 'doing what they can to not pay until the 15/16 year.
We will see what the correct figures show in October.
Totally agree - the ACC rort alone deserves to be highlighted given the exorbitant costs borne by citizens to allow Bill English to trumpet a dubious budget surplus so small it's can only be subject to rounding error dispute.
The bigger cuts recommended by ACC would have sliced $119m off the Budget balance in 2014-15. The Government aimed to reach surplus this year, despite a forecast deficit. Read more
Creative Accounting love it...I wonder if they booked the $200 million hit to super fund in this "forecast"? Right now we can start discussing free Tertiary education for the brighest students, , raising the super to 67, and banning foreign speculators buying up our houses/land. Hello ...National...are you there?
Why would you want to divert even more taxpayer money into the pockets of people who are already likely to be among tomorrow's highest income earners?
Certainly, the public and the national interest in general gets some of the benefit that results from providing good minds with good education. That is a reason why the public should take on some of the costs of it, as in fact it does. But most of the benefit, in terms of higher earning power, actually goes to the recipients of that education. It's not unreasonable to expect that they too should make some contribution to the cost.
We are now at a turning point, and we must ask ourselves: do we want to keep increasing fees and follow in the footsteps of the failed American system – with its $1tn black hole of student debt – or do we want to follow Scandinavia and now Germany in scrapping tuition fees?
Who says we are at a turning point? What makes this a turning point?
No, we don't have to ask ourselves that question. We don't have to choose between those two options. American and Scandinavia are not the only possible models. It's perfectly possible to think of an approach which is neither full-cost to the student nor full-cost to the taxpayer.
Hmm, what could that be? How could we devise a system which reflects that students and the public each get some of the benefit of tertiary education?
Oh yes, one in which the student and the public each pay some of the cost - ie, the approach we already have. What is the case for changing that?
While the educated do receive great benefit, tying them to extremely high levels of debt at the very start of their careers causes many difficulties...not the least of which is the need for higher starting salary to cover the burdern. the greatest social cost is from, having paid back that debt, the individual still has a compensatory high income and no social or mental justification to improve the status quo.
Loading young people with massive debt burden _will_ push them towards consumption behaviour and depressed outlook to life. Young, free, finally got a chance to create yourself and explored, (or use all those years of education) only to get the massive debt burden dumped on you by the cost structure and cost padding of the system, that you've had little chance to avoid or improve...short wonder that the survivors are juandiced.
“During the past two and a half years every artifice has been employed to create the impression that public expenditure on education is recklessly extravagant”. So complained RH Tawney 80 years ago. The same impression was given more recently by politicians when they raised tuition fees. Public spending on higher education has been reduced to a minimum, save in medicine, a few of the sciences and some minimal maintenance grants. Whose idea was this? It was dreamed up among the 1%, the very richest in our society.
http://www.theguardian.com/education/2014/sep/30/tuition-fees-bonanza-f…
While this is excellent news , running a budget surplus is not always a good thing when you want to grow the economy or increease employment levels .
In the Monetary equaltion , government spending ( Represented by G in the equation ) is always stimulatory when G is increased .
This increase in G is either done through borrowings which tend to cause a budget deficit or increasing Tax which is often driven by redistributive policies
Any spending is.
So private spending is say P. So its a positive change in P+G=increase. If however the P is shrinking then G has to increase just to break even. Ergo the effect isnt NET stimulatory if the drop in P is bigger than G has increased.
A deficit causes Govn borrowing to my mind, or tax has to be increased.
Interesting thing is higher taxation (for higher incomes) and then spending it is more expansionary than tax cuts. So really natioanl did the wrong thing economically in 2008/9.
I'll admit I am confused on their single focus on getting back to a positive balance at the expense of other areas/economy, seems short termism.
since the Government has massive sovereign and trade debts, any surplus is akin to having savings in your savings account while having a balance owing on your personal loan.
However as history proved when Nats first came in and ACC's share holdings had plummeted and they had very little liquidity, there does need to be a significant buffer of cash margin that can be used to support business for several months.
I won't just how much of the surplus is the drop in the NZD?
Long live the Auckland House Price Bubble? I wonder if Bill understands that running a surplus or a deficit less than 2% will lead to asset bubbles if the Reserve Bank is targeting 2% inflation. Worked for Michael Cullen.
As I see it a government deficit of 2% is the effective zero level if you have a Reserve Bank that targets 2% inflation. If the deficit is less than that, or worse still there is a surplus, the Reserve Bank will be forced to hold the interest rates below the natural rate to compensate. Result - asset bubbles. This only holds if the government is the currency issuer mind you, not if you are Greece or Ireland (the Germans did it for them, or to them, depending on your point of view). Government debt in the currency it issues is a soft loan, you can repay it or not as you choose.
Having a balanced budget just means having more choices. Nobody wants situations where policy is forced on them because of crises formed due to a lack of poor book keeping, which in itself limits spending choice. Borrow too much, and QE, default or stagnation are the choices. So bravo to Bill and his team, quietly achieving. Johns annointed successor has earned his right to manage my share of the public money anyway.
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