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NZ budget deficit already NZ$700 mln worse than shock pre-Christmas forecast (Update 1)
April 3rd, 2009
The affordability of the latest round of tax cuts, initially announced during National’s election campaign in October, is under further scrutiny following the release of Government financial figures by Treasury that show a large gap between Government’s operating balance and Treasury’s pre-Christmas forecast.
(Update 1 to include comments from Finance Minister Bill English.)
Corporate taxes, GST receipts and withholding tax on interest payments were lower than expected because of the longer and deeper than forecast recession and lower term deposit rates.
This will concern Standard and Poor’s, which announced it was reviewing New Zealand’s AA+ credit rating after seeing the shock pre-Christmas numbers. S&P is worried New Zealand will be running big ‘twin deficits’, with both the public sector and the private sector borrowing heavily at the same time.
The operating balance before gains and losses (OBEGAL) in the financial year to the end of February 2009 was NZ$49 million, down 97% from the pre-election update forecast and NZ$1.2 billion worse than expected in Treasury’s pre-Christmas update.
However, NZ$494 million of the shortfall was because February’s tax due date was moved to March 2 as the last day of February fell on a weekend. This means the budget deficit is already running about NZ$700 million behind where it was forecast to be before Christmas. There are still 3 months left in the financial year. Treasury said this February timing difference would reverse out in March.
The OBEGAL was down NZ$551 million from the end of January.
Government’s operating deficit, including gains and losses from investments in ACC and the NZ Superannuation Fund, slipped further into the red in February, well below the Treasury forecasts that election promises were partly based on.
The figures show a large gap between Government’s operating deficit of NZ$8.45 billion for the eight months to the end of February, compared with Treasury’s pre-election update forecast of a positive balance of NZ$3.2 billion, a gap of NZ$11.6 billion. In the seven months to January, Government’s operating deficit was NZ$5.5 billion.
Losses were up due to fewer tax receipts than forecast and losses from ACC and the NZ Superannuation fund.
“Tax revenue and receipts were approximately NZ$1.8 billion lower than forecast in the Pre‐Election Update,” Treasury said.
“This variance had increased since last month, mainly due to a temporary timing difference that is expected to reverse next month. Once this timing difference reverses, we expect tax revenue and receipts to continue tracking more in line with the forecast in the December Update, as the continued deterioration in the world economic situation flows through to the New Zealand economy.”
“Losses on non‐financial instruments were NZ$5.2 billion. This consisted of the ACC actuarial loss of NZ$2.9 billion and the GSF (Government Super Fund) actuarial loss of NZ$2.4 billion.”
“The ACC actuarial loss of NZ$2.9 billion compares to NZ$3.1 billion last month and is based on the latest valuation performed in December 2008. The GSF actuarial loss of NZ$2.4 billion compares to NZ$0.9 billion last month and is based on the latest (4‐monthly) valuation performed in February 2009.”
The New Zealand Super Fund had a deficit of NZ$3.57 billion at the end of February, NZ$4.2 billion below the pre-election forecast.
Core Crown expenses in the eight months to February were NZ$39.75 billion, up 8.3% from the same period a year ago. Social security and welfare spending was up 6.3% to NZ$12.4 billion while health spending was up 8.8% to NZ$8.1 billion. Spending on core government services were up 13.6% to NZ$2.2 billion.
Commenting on the results, Finance Minister Bill English had a stab at the “loose spending policies” of the previous Labour government. He added that National’s April 1 tax cuts and brought-forward infrastructure spending would help New Zealanders through the recession.
“It’s clear that the global recession continues to have an impact on the government’s finances. It’s also clear that the patently loose spending policies of the previous Labour-led government were unsustainable,” English said.
“As we prepare for our first Budget on May 28, the new government is performing a delicate balancing act. Our first priority is to ensure that we help New Zealanders get through the worst effects of the recession by preserving entitlements, providing more than NZ$1 billion of tax cuts from April 1 and bringing forward productive infrastructure investment,” he said.
Tags: ACC, Cullen Fund, Government Super Fund, NZ Superannuation Fund, OBEGAL, Operating Deficit, Standard and Poor's Ratings Services, Tax Cuts, Treasury
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April 3rd, 2009 at 12:39 pm
If the super fund keeps losing at this pace they will have to up employer contribution to keep up.
this is like shooting both your feet off.
April 3rd, 2009 at 12:53 pm
Bill English said
“Our first priority is to ensure that we help New Zealanders get through the worst effects of the recession by preserving entitlements, providing more than $1b of tax cuts from April 1 and bringing forward productive infrastructure investment,” Mr English said.
That didnt work last time he said it,its got worse,time for more of the same.
I take this is going to involve borrowing both for spending shortfall and to provide stimulus. Hmm = higher interest rates higher $ lower profits less tax.maybe this isn’t the answer maybe its time for some old fashioned saving now that’s a novel Idea
maybe these guys can help
http://www.timesonline.co.uk/tol/news/politics/G20/article6020603.ece
http://informationclearinghouse.info/article22339.htm
April 3rd, 2009 at 1:24 pm
“Housing bubbles” simply generate bubble government revenues and general bubble political and commercial behaviour.
We are simply seeing the reverse of this underway currently.
Policymakers and economists should have seen all this happening years ago – if they had had their eyes open.
Hugh Pavletich
April 3rd, 2009 at 1:32 pm
@Andrewj – the info clearing house piece is written by someone who writes this about himself:
“He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. ” (bottom of that link page).
Hard to take his analysis seriously after reading that.
April 3rd, 2009 at 1:42 pm
yeh but he one of these a PhD in Statistics
and you forgot to mention the rest
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at http://www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com
April 3rd, 2009 at 1:46 pm
True and I’ve not had time to visit that website (got to help the NZ productivity levels you know – and keep my job!!)
Any ideas what “CB” means?
BTW Did you see the piece on 3 News last night about Affco adding a shift at their plant in Taranaki?
April 3rd, 2009 at 1:51 pm
The East coast is heading into an Autumn drought, panic is close, Stock is being killed. On my place its as bad as 2 years ago. AFFCO will have a big hole soon.
April 3rd, 2009 at 2:34 pm
Hugh Pavletich’s point is bang on.
NZ should have been in recession back in 2003, and cutting waste in government spending and ensuring private sector efficiency by reducing regulatory burdens and reducing taxation. But instead we had our economy pumped up by consumers spending their increased house “equity”, which was not related to our earnings at all. We need to realise this; our economy has been inflated and even people living within their means have been earning an artificially high amount. Worst of all, the government enjoyed artificially high tax revenue, and while posturing about how fiscally responsible they were, sought and found new ways to spend the windfall gains.
EVERY measure that Labour 1999-2008 introduced that carried an economic COST, but was assumed to be “affordable” by a booming economy, was NOT affordable under the conditions of reality that were obscured by this artificial boom. This artificial boom was aptly described in the UK situation by Fred Harrison way back in 2005, as Keynesian “stimulus” with households carrying the burden of debt instead of the government. No-one listened to him in the UK and almost no-one is listening to sense in NZ right to today.
Not only are WFF, student loan subsidies, 4 weeks annual leave, Kiwisaver, maternity leave, the boosted RMA,nationalised ACC, “asset” buybacks, and a whole lot of other stuff not affordable under the true 2000-on economy, a whole lot of additional belt tightening was necessary at that time and remains so.
Here are some more of the whammies we have not even started to consider, as our recession bites.
Kids will be removed from Private schools and placed in public ones by parents who can no longer afford the fees.
People with health insurance will cancel, and there will be more demand on public hospital operating facilities. People on waiting lists who gave up and paid their own way through home equity withdrawals will no longer be able to do so.
Workers on WFF who work shorter hours and generally earn less will qualify for top-ups from WFF.
I am only scratching the surface.
Lefty, nanny statists who salivate at the prospect of so many people losing their financial independence and becoming increasingly reliant on the state now, need to rethink. Their model is about to die a death of plain, simple, unsustainability.
April 3rd, 2009 at 3:04 pm
@Philbest – “Kids will be removed from Private schools and placed in public ones by parents who can no longer afford the fees. ”
This is already happening in Auckland, public primary schools have stopped taking out of zone pupils – even siblings of existing pupils have been shut out.
April 3rd, 2009 at 4:49 pm
Hey Guys, don’t worry, the bubble is still around…Auckland property sales just jumped again into strastosphere and seller are again asking strastopheric prices…..
One more round before we (the foreign creditors) shut off the lights ?
Sometimes I wonder if our RBNZ and Treasury analysist (Phds and whatnots not withstanding) are really worth the two cents that we pay them?? or are they all just “buble head” geeks ??
Economic cycle goes up and down, it’s just that Goverment officials don’t want to see the “down” part….nor tell bad news to their political masters??
April 3rd, 2009 at 5:55 pm
Very good Philbest keep it up
Baz
April 3rd, 2009 at 7:08 pm
I dug this up
if the volume of debt is rising faster than national income, and capital supporting production is eroding fast. If, as in the worst-case scenario, the ratio falls into negative territory, the message is that the economy is on a collision course and crash in imminent. Not only does more debt add nothing to the GDP, in fact, it causes economic contraction, including greater unemployment. The country is eating the seed corn with the result that accumulated capital may be gone before you know it. Immediate action is absolutely necessary to stop the hemorrhage, or the patient will bleed to death.
http://www.financialsense.com/editorials/fekete/2009/0330.html
April 4th, 2009 at 4:22 pm
Thanks Baz.
Kin, you are onto it too. We need more people onto it on these serious issues.