Govt operating deficit before investment gains a record NZ$18.4 bln due to quake costs; EQC levies to jump threefold, Treasury says

Govt operating deficit before investment gains a record NZ$18.4 bln due to quake costs; EQC levies to jump threefold, Treasury says

By Alex Tarrant

Finance Minister Bill English is sticking to a return to surplus track of 2014/15 after the government recorded a record NZ$18.4 billion operating deficit before gains and losses for the year to June 30, 2011.

Treasury today released the Crown’s financial statements for the year to June, which showed a blow-out in expenses due to the devastating earthquakes which have hit the Canterbury region since September 2010. Of the NZ$18.4 billion deficit, half (NZ$9.1 billion) was attributed to the earthquakes.

“This is an unusually large deficit, but it includes the significant costs of the Canterbury Earthquake Recovery Fund and the updated assessment of Earthquake Commission costs,” English said in a media statement.

“Setting aside the earthquakes, we’ve made good progress compared to estimates five months ago in the Budget. A combination of higher than forecast revenue and lower than forecast spending has reduced the underlying deficit by about NZ$2.8 billion,” English said.

“However this was more than overshadowed by the higher earthquake costs,” he said.

The operating deficit before gains and losses compared to a NZ$16.7 billion shortfall expected in the May 2011 Budget, with the jump due to a recent reassessment of quake damage caused in Christchurch carried out by the Earthquake Commission, which also announced today that levies would be increased threefold in a bid to recapitalise its natural disaster fund back to NZ$6 billion over 30 years.

Quake hit

Total Crown expenses in the year to June rose NZ$18.9 billion from the previous year to NZ$100.0 billion in the June 2011 year. Of the increase, NZ$13.6 billion was attributed to the earthquakes.

“EQC insurance expenses were NZ$11.7 billion higher than last year due to the Canterbury earthquakes and core Crown spending increased by NZ$1.9 billion due to earthquake-related expenditure,” Treasury said.

Total Crown revenue in the year to June was NZ$81.6 billion, up NZ$6.8 billion from the year before. Most of the rise (NZ$4.2 billion) was due to EQC insurance claims on its reinsurers due to the Canterbury earthquakes, Treasury said.

Core Crown tax revenue rose NZ$0.8 billion, or 1.6%, over the year to NZ$51.6 billion. This was the first annual rise in core Crown tax revenue in three years, Treasury said. Growth in tax had been diluted due to policy changes in Budget 2010. These changes had the impact of reducing taxes levied by NZ$2.7 billion, Treasury said.

“Salary and wages have increased during the year although the impact of personal income tax cuts have more than offset any increases in tax coming from source deductions,” Treasury said in the financial statements.

“Business profits (both corporate and individual) have also increased over the year but again the impact of policy changes through tax cuts have seen lower tax takes from corporate and ‘other individuals’ compared with a year earlier,” Treasury said.

“On 1 October 2010, the GST rate increased from 12.5% to 15%. In addition there was a small increase in consumption over the year resulting in an increase in GST revenue,” it said.

Super Fund helps

Meanwhile, a recovery in investment markets over the year saw the Crown make net gains of NZ$5 billion from its Superannuation and ACC investment funds.

Including these gains the government’s operating deficit was NZ$13.4 billion, compared to NZ$9.4 billion expected in Budget 2011.

Debt up

The Crown’s net debt rose from NZ$26.7 billion to NZ$40.1 billion (20% of GDP) over the year, Treasury said. Gross debt stood at NZ$72.4 billion at June 30, slightly up from NZ$71.6 billion expected in Budget 2011.

The financial statements come ahead of the Pre-Election Fiscal and Economic Update, which will be released on October 25.

They also follow sovereign credit rating downgrades from Fitch Ratings and Standard & Poor’s from AA+ to AA two weeks ago, due mainly to New Zealand’s high external liabilities.

Sticking to surplus track

Speaking to media in Parliament on Tuesday afternoon, English said the government had booked future earthquake costs in the year’s accounts based on advice from government accountants.

“When we know what those future costs are, we have to book them in the budget," he said.

However there was some risk with additional future costs coming through from the earthquakes that could be higher than expected.

“Treasury have a job in the pre-election update of taking a guess at any future fiscal risks, and if they think there are significant risks there, then they’ll be laid out in the pre-election update," English said.

It was not hard to believe there were risks there, “and if they eventuate, we’ll cope with it.”

“Bearing in mind the accounts we’ve published today have demonstrated the capacity of the government to deal with one of the largest natural disasters in a developed country for a long time. We’ve absorbed that in our budget, and we have been able to establish a track to surplus, which we’re going to stick to. We’ve handled a big lump already. If there are a few more small lumps I think we can handle them,” English said.

Defends tax switch

Stripping out earthquake costs the accounts showed the underlying fiscal management was “pretty good”.

“It’s NZ$2.8 billion better than we budgeted back in 2010. We’ve controlled government expenditure better than expected, and tax revenue was a bit higher. So we’re pretty confident we can halve it in the current year,” English said.

The deficit would be halved again the following year before getting back to surplus in 2014/15.

“That’s the result of a longer-term view the government is taking, where we’re focussed on getting permanent and long-term changes in government spending rather than short-term savings. I think in the next two or three years we’ll get a payoff from that,” he said.

English defended the government’s tax switch in the 2010 Budget, after figures showed the switch had lowered the tax take. English said the switch would be revenue neutral over four years.

“The most important thing about the tax switch is the change in incentives. The short-term impact on the government budget, we took that into account. But in the long-term we’re trying to shift the incentives in the economy to favour savings and investment, and returns from working, and to penalise excessive consumption and property speculation," English said.

“We’re only half-way into the first year of the operation of that full tax package. We said the benefits would flow over three to five years, and I’m confident that they will."

Belt-tightening still to come; Public service watch out

There was a lot of belt-tightening still to come, following a zero budget this year, English said. The government has committed to increasing spending by no more than NZ$800 million in next year's budget.

“We’re only just three or four months into that year. There is plenty of belt-tightening to come over the next three or four years. Along with that we want to concentrate on getting better results. So we would expect that a lot of the work we’ve done in the last couple of years around law and order, and around welfare, will start having some fiscal payoff in the next few years,” English said.

The squeeze was coming harder on the public sector, as the number of public sector workers on the frontline increased, but back office staff were cut. English said he expected the numbers would continue to shrink because budgets were getting tight.

“We’ve got many competent professional public servants, and they’re all going through a process of rethinking what they do,” he said.

(Updates with video, comments on tax switch, belt-tightening)

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Oh dear.. it's getting grimmer everyday 

put out yer to mother China

"The Crown’s net debt rose from NZ$26.7 billion to NZ$40.1 billion (20% of GDP) over the year, Treasury said. Gross debt stood at NZ$72.4 billion at June 30, slightly up from NZ$71.6 billion expected in Budget 2011.

To whom is the crown lending $32.3 billiont to reduce the gross debt from $72.4 billion to  net debt of 40.1 billion?

Surely not to New Zealanders otherwise a circular money-go-round negates the veracity of the net claim.  

The RBNZ holds around $30b to support trade.

http://www.rbnz.govt.nz/statistics/rbnz/f2/data.html

Neville C...    Can u elaborate on that ..??

My thinking was that the Growth in Reserve Bank Balance sheet was because the Govt has borrowed more than it immediatley needs... and has that on deposit with the Reserve Bank..???

Cheers  Roelof

Way to go National, they almost doubled our government debt in one year! and these guys are good for the economy why?

Still as long as the rich got tax cuts thats all that matters, even if we have to just about bankrupt the country to do it.

Better not stop paying for massive losses to property investors each each to run big losses either, we can just borrow for that, no problems at all, just tick it up.

Oh, come on, most people on the 70K+ tax band are not "rich" (have you been to the supermarket lately or checked your power/rates/etc bills? You'd need to earn quite a bit over the highest tax band threshold to be rich these days, assuming you define rich as having a significant discretionary income).

Btw, people on middle/low incomes can't be given tax cuts because there is nothing to cut, most don't pay any tax already... 

That said, I agree on the total incompetence of the current governemnt.

Yes Elley : In America they set the top tax threshold around $US 250 000 p.a. That was the " rich prick " level , where Barack deemed you to be a private jet flying Republican shit , worthy of skinning alive for being so rich & successful ....

...... in Australia , they set the benchmark at $A 150 000 p.a. ...... anything above that and you weren't true-blue dinky-die cobber-digger-mate , one of us .......

But in Godzone , NZ , $NZ 60 000 p.a. was seen to be a freakingly large pay-check , and woe betide you , rich prick , the IRD were all over you alike a rash ... pay up scum-sucker , pay your fair share !

.... and they wonder why the 747's are full of young Kiwis flying to Oz , never to return !

How about comparing apples with apples.

OZ has 4 tax brackets....to $80k 30%.....to $180k 38% above $180k 45% before making claims based on thin air.

So for young kiwis its not likely to be tax....its far more likely to be OE, opportunities, salaries and more affordable housing.....certainly the latter for the younger kiwis I know is a biggee...

regards

A family member, working in Perth the past couple of years, told me he was contacted by NZ IRD and told he must pay NZ taxes on his OZ earnings because he has significant holdings here (two houses).  Has anyone else heard of a fresh tax harvest on overseas workers?

The United States taxes it's citizens on their worldwide income.

Imagine the effect of NZ's tax revenue if we did the same. With close to a million offshore kiwis (better figure anybody? ) of higher than average earners, our deficit worries would be over .... for a while.

This Q&A site has good coverage of trans-Tasman tax issues - you might find a similar question  relating to your family member's situation;

http://www.landlords.co.nz/ask-an-expert-full.php?askanexpert_category_id=5 

 

Yep. Amazing how earning a decent income, which incidentally means being able to look after oneself & one's family without having to rely on welfare, is almost viewed as a disease. If it wasn't so pathetic it'd be hilarious.

I'm wondering if the obvious resentment is because of the abuse of the system by a few (truly rich) people or if there is a genuine dislike for anyone who's motivated enough to try and do well for themselves, and succeeds.

Government has increased our debt by 66% this year alone!  It is spending 18.9% more that it earns.  On the fast track to impovershment I'd say.

What day dream lala land is he living that this kind of excessive borrowing will slow down.  Growth is dead we are paying more and more of our tax dollars in interest repayments, where is the surplus comming from?  I forgot they are comming from treasury forcasts, great we will be fine.

that makes it 2 Mayday calls this morning - one from the Rena and one from the good ship NZ

I’m bloody disgusted at the way the Gunmint is handling the Rena stranding. It’s been on that reef for days and the gunmint’s done nothing about it. If that ship breaks up and all its oil gets spilled, I blame John Key! As far as I’m concerned, instead of poncing around with his flash mates and attending rugby world cup matches, John Key should be out there in the dingy taking charge of the situation. There’s no reason why he shouldn’t be throwing a line to that ship and rowing the bugger off. As I said, I’m bloody disgusted. I voted for National in the last election, I’ll never do it again.

Signed Bloody Disgusted of Kaukapakapa

 John Key was quicker to react to Coronation Streets time slot change but not when New Zealand faces one of its worst ecological disaster ...

 Caring about Coro Street Key is possibly gathering some Labour, Maori, ACT and other immature voters.

......one of its worst ecological disasters i think not.  2 dead birds reported so far.  Pales into insignificance when compared to the introduction of possums, rates, ferrets and other mammals.  Not to mention vaste areas of clear felling, clearing of the high country that now slips and washes into rivers such as the Wanganui.....not to mention the state of the Waikato River..

this is a non event when compared to the mess we have already created....but great for the hand wringers..

New Zealand's worst maritime environmental disaster has been realised, Environment Minister Nick Smith says.

http://www.stuff.co.nz/environment/5763630/Rena-worst-maritime-environmental-disaster

 Politicians cannot be trusted. The NZpublic incl. media needs to wake up and make our government accountable.

Big words from Minister Steven Joyce last night on “close up” and “Campbell live” – neither of the interviewers was up to the job – asking solid and profound questions.

 Please, read on why:

http://www.maritimenz.govt.nz/Publications-and-forms/Environmental-prote...

 go to page 58 booms - 61 skimmers. Reading through the documents in my opinion despite the relatively high risks New Zealand is simply not equipped enough and with modern safety gears to fight such an oil spill.  Authorities reacted far to slow. While the sea was calm - I’m wonder if the case was regarded as serious in the first few hours ?????

End of the day we see another investigation by the government, costing millions - about its own failure.

Oh Well

"May The Force Be With You All."

Yes its minor, however  are you suggesting we just carry on pillaging and polluting NZ / the planet?

regards

The cynic in me wonders if the govt is trying to downplay this so as not to detract from the 100% pure propaganda tied into the rwc. It's a tad inconvenient

All I can say is we are very lucky Goff isn't running the show or that would be a lot higher.

Moronic comment!

What? that Labour wouldnt have belt tightened and in fact spent more? hence a bigger deficit?

regards

Yep lookin pretty grim, laying out thew dosh on the premise ones to recoop that EQ cost is always a dangerous position to take. If it doesn't work out NZ is further owing to someone else and there be less left after the election.

Dont worry guy's, when the debt gets too much these guy's are ready to buy the assets

http://www.stuff.co.nz/business/5763318/Infratil-praises-its-track-record

No answers from the site as usual Iain...bit like the politicians, the media and the rest of those who are likely invested up to the eyeballs into the scam!

......And lo and behold , the NZ$ actually strengthened on this news!

The World has gone mad 

"Treasury have a job in the pre-election update of taking a guess at any future fiscal risks"

Well, at least we can rest assured that they are highly competent and motivated to do that.

If you have any doubts on that front, just look at their handling of the deposit guarantee scheme with the finance companies, and you will be able to put you mind totally at rest

Cheers.

"we’re trying to shift the incentives in the economy to favour savings and investment, and returns from working, and to penalise excessive consumption and property speculation"

Towards this end, of course, we won't even consider discussing anything as outrageous as a capital gains tax.  I mean..... how on earth would that penalise property speculation??

"There is plenty of belt-tightening to come over the next three or four years"

Except of course for the absolute basics, such as superannuation at 65, middle-class welfare with WFF, and interest-free student debt.  These obviously have to be sacrosanct.  Hospitals & schools might have to wear the pain instead.  Tough.  Suck it in.

Cheers again

"..to penalise ... property speculation". English said. Thx, Philly! I'd missed that bit.

The absolute basics are more tax cuts for the wealthy and a programme of continuing the looting of our publicly owned assets and infrastructure.  The belt tightening is for everyone else lower in the pecking order, the lower the tighter.

"Captain,Captain."

"Yes Scotty, Report Scotty."

"Captain I CAN'T Hold Her ,"

"She's Breakin Up Captain." !!!!!!

"Shes Breakin Up." !!!!!!!!!!!!!!!!!!!!/////////

They have and have always had the opportunity to reverse the tax cuts.

Nuff said except wait until after the election and see what they do next.

Just like a Rena awakening. Asleep at the wheel?

I really wonder if Goff could have screwed the Economy up any more than this lot.

Maybe we would have been much better off under Labour economic management for the last three years.

A reason that we staggered through under National until now is that under Labour public debt had been paid down, and an attempt was sort of made to balance the economy over the whole cycle, albeit based on wrong assumption (agreed with by Treasury) that tax revenue increases since 2000 were permanent (which meant WWF and suchlike would have looked more affordable than they proabaly are).

(re the tax revenue increase being seen as permanent see page 19 of Making fiscal policy more stabilising in the next upturn: Challenges and policy options by Anne-Marie Brook, NZ Treasury, June 2011)

Political jive...

What Billy Bob actually said...

 The EQC legislation....we thought we had read it ...apparently not, well that is to say we did not understand it.

We will need to revise it so as to avoid confusion on our part in the future.

The Money.......well there was not enough and we need to levy more,well not enough to frighten  voters at the moment, but given a mandate yes certainly....after we read and understand it of course.

Fairness...well we want to ensure a fair deal for the insured and equally the insurer. Although we feel it's important not to frighten them (re-insurers) off by being too fair to the insured and we think that's fair.

Affordability.....well we know this will add pressure to those already stretched paying their mortgage...we aknowledge that, so we hope that helps.

Overview...It would appear we cannot read and understand an insurance policy any better than your average Joe and have been caught somewhat  offguard...so you'll all have to pay.   Following the Election assuming we are returned, you'll all have to pay a lot more.

 

Looks like the Government will be having to dip into their (our) pockets for this Rena fiasco as well. Someone on telly was saying that the maximum liability for the ships owners/insurers is only $11m.

Guess we could always ask the Greek Government to help out..........

So true KiwiD......where's Aristotle when you need him eh...?

"The reality is that governments can do very, very little to be constructive;

Most of what they do is destructive. They're very good at that."

 

Not sure where I read this but it is a fact.