Government increases Budget surplus to NZ$1.8 bln in 2015/16 from NZ$414 mln in 2014/15; English says rising surpluses give Govt options for debt repayment and tax cuts

Government increases Budget surplus to NZ$1.8 bln in 2015/16 from NZ$414 mln in 2014/15; English says rising surpluses give Govt options for debt repayment and tax cuts
Finance Minister Bill English talking about the 2015/16 Crown Accounts at Treasury on October 13, 2016. Photo by Lynn Grieveson for Hive News.

By Bernard Hickey

Treasury has unveiled a surplus of NZ$1.8 billion for the just completed financial year to June 30, which was up from NZ$414 million the previous year and up from a forecast of NZ$176 million in Budget 2015.

The result was also more than double the forecast from May 2016 Budget of NZ$668 million as nominal GDP grew by 4.2% in the year to NZ$251.8 billion, helping to power higher than expected income tax and solid GST revenues.

Finance Minister Bill English said the result gave the Government choices about repaying debt and cutting taxes.

“Government surpluses are rising and debt is falling as a percentage of GDP which puts us in a position to be able to make some real choices for New Zealanders,” English says.

“The New Zealand economy has made significant progress over the past eight years. This delivers more jobs and higher incomes for New Zealanders, and also drives a greater tax take to help the Government’s books," he said.

Core Crown tax revenue was NZ$1.6 billion higher than forecast in Budget 2015, while spending at NZ$73.9 billion was below the Budget forecast of NZ$74.5 billion.

“We’ve also been getting on top of our spending, exercising fiscal restraint while still investing responsibly in our growing economy and public services," he said.

“If there is any further fiscal headroom, we may have the opportunity to reduce debt faster and as we’ve always said, if economic and fiscal conditions allow, we will begin to reduce income taxes."

English said the outlook for the economy was positive, but there were risks internationally.

"We also need to bear in mind that there are a lot of risks globally and that is why it is important to get our debt levels down," he said.

Still borrowing for now

However, the Government still ran a residual cash deficit of NZ$1.3 billion for the 2015/16 year, albeit down from NZ$1.8 billion the previous year.

It was lower than the May Budget 2016 forecast for a cash deficit of NZ$2.1 billion, which meant net debt rose to NZ$61.9 billion from NZ$60.6 billion (but was less than the NZ$62.3 billion forecast just five months ago.)

"While operating cash flows were positive, capital payments of $4.6 billion resulted in a residual cash deficit of $1.3 billion," Treasury said.

Treasury emphasised the growth in the total economy for the better than expected Budget surplus in OBEGAL (Operating Balance Excluding Gains and Losses) terms.

"The robust GDP growth was reflected in private consumption growth of 3.5%, plus strong contributions to economic growth from residential construction and inbound tourist spending, up by 16% and 17% respectively," it said.

"The total population grew by 2%, boosted by a net influx of nearly 70,000 migrants in the year to June," it said.

Core Crown tax revenues fo NZ$70.5 billion for the year to June 30 were up from NZ$66.6 billion the previous year and above the NZ$69.7 billion forecast in May.

Core Crown revenues rose to 30.2% from 29.9% the previous year and was slightly above the May forecast for 30.1% as stronger growth lifted the effects of 'fiscal drag', whereby incomes rise into tax brackets with higher tax rates.

Total wages and salaries rose 5.0% for the year.

Political reaction

New Zealand First Leader Winston Peters said most Kiwis were saying they still struggling.

“If the money is there as the government states, why isn’t some of it going to help the struggling hospitals around the country, the grossly under-resourced police, and to alleviate problems they have created with massive immigration and a lack of housing supply," Peters said.

“Where's the money for education and biosecurity? Why are DHBs being forced to cut costs? Why are our roads congested and struggling to cope? Police can't stop drugs and this government can't even roll out more frontline cops,” he said.

(Updated with fresh photo and more details, reaction)

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Good effort by the majority of NZ Inc to get us to this good position. Despite the hand wringing by the glass 1/3 empty brigade at this site NZ remains in a good position relative to other OECD countries when the next shock happens. NZ is not large enough to cause a major shock but we can safeguard ourselves against one with having a good fiscal position.

We would be in a better position had they not given their previous tax cuts.

I believe that I am better placed to allocate the money from the tax cut rather than some govt dept.

You mean the tax cut that the government borrowed to give us. I believe I'm better placed to determine whether I take on debt

"we can safeguard ourselves against one with having a good fiscal position"

Thats worth a tui billboard. Clearly you dont see whats coming.

Would you rather go into a GFC type event with a large deficit than a surplus? Aussie had a surplus but Rudd soon made that disappear. Their chances now of surviving another one is a lot harder now as they have deficits.

I'd like to enjoy the next GFC without NZ$60 billion of debt.

TBS, considering this country runs current account deficits and the government is in a 'good position', who do you think is now in a worse position as a result?

If JK gives me a tax cut equivalent to a 1kg block of cheese per week, Nat's vote is mine! (they can rescind the tax cut in year 2)

Yes!!

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At least you will be able to afford a house for your pet mouse...

Coincidentally today's Herald notes there's a Nat MP already looking at the cheese.... Tax cuts ahoy?

(Note that your tax cut for this particular cheese would be about $80 a week...)

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Always puzzles me how the surpluses turn in to deficits when you read the fine print, regardless of which Govt is in.

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yes makes me laugh we are in surplus but still need to borrow.
gee I am glad my accounts are not like that, you made a paper profit but we need to keep borrowing to fund day to day operations

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Yes - its the story of the modern age.
We cant actually afford our lifestyles but we can colour in the books so it sort of looks like we do.

Your accounts, if done by a halfway competent accounting wallah, are Exactly like the Govt's:

  • Statement of Financial Performance - the accrual-based rendition of the P&L
  • Statement of Financial Position - again, accrual based, the old Balance Sheet. It importantly includes assets and liabilities - neither of which are necessarily cash based. Like tax and PAYE obligations - the downfall of many a small trader.
  • Statement of Cash Flows - the bit that reconciles opening with closing bank balances. Cash flow difficulties are, like tax obligations, a common cause of small business failures.
  • Statement of Accounting Policies - which explains just how the various figures are derived. Not generally important for small businesses, but get into financial instruments or revalued large assets and this is where the bodies get buried...

So the Gubmint, against all expectations, is actually one of the few in the developed world that uses 'proper' accounting, hard as that may be to swallow.....

Statement of Financial Position - again, accrual based - which importantly includes assets and liabilities - neither of which are necessarily cash based. Like tax and PAYE obligations - the downfall of many a small trader.

Which can be subject to ideologically driven political abuse. Many public forward utility costs are elevated on an accrual basis and discounted by NPV calculations to present a case of cheaper private ownership delivery today. Which in hindsight is hardly ever the case. Witness UK PPP catastrophes. I am not sure Transmission Gully will fare any better, given NPV costs have risen significantly since interest rates have nearly halved after 2014 discounted cost calculations were presented.

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No tax cuts please.Spend the surplus on health, infrastructure and education...in an efficient manner.

1000 more cops needed, extra nurses, teachers, doctors, all the joys of a growing population
services need more spent on them to keep up with the growth let alone infrastructure

haha. funny.
That is most definitely not where the money is going to go. That would be the wise choice.
Open the door to immigration and neglect the infrastructure is the MO.

What never ceases to amaze me is how far out the actual from the forecast is. It may sound cynical, but it really makes me question the constitution of the results, as evidenced by the cashflow figures.

Agree. Typical Nats with their bribes. We desperately need this reinvested into education, healthcare, infrastructure

the operating balance after gains and losses was in deficit by $5.4b according to Stuff

$1.8 bln, give and take $5 per healthy lunch.. that will be enough feed 1.8 million hungry children at school for 200 school days. No tax cut please

How about tax cuts for those who want them and no tax cuts for those who don't? That way everyone wins! Tax cuts = parents have more money to buy food for their children or save up for the further education of those children.

And those cuts will mean your school fee "donation" portion will increase by roughly the same amount.

Most of those lunches will be thrown away only half eaten.

Treasury emphasised the growth in the total economy for the better than expected Budget surplus in OBEGAL (Operating Balance Excluding Gains and Losses) terms.

Can anyone deny this is not a symptom of kitchen ATM debt funding underwriting excess GST payments accrued on record new car sales etc?

When I see this line tucked away in the announcement I just have to laugh "While operating cash flows were positive, capital payments of $4.6 billion resulted in a residual cash deficit of $1.3 billion," Treasury said.

Capital payments reflect repayments of debt while the operating cash flows reflect the interest payments. I.e. if we had borrowed $5billion then we would not have had a cash deficit. Don't you love accounting.

Housing NZ will need that $180b

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Direct Public Debt
Govt debt before key took office 30bn
Govt debt after 8 years of Key over 78bn

250% more direct public debt under national. Sounds like paying off the debt may be a good idea

Is that NET debt? Can you please cite your sources? How have neighboring countries performed in the same global environment?

debt of 113 billion, we could always sell some schools, hospitals prisons to pay it down
look sir my neighbour has borrowed more than me so I must be better is not an argument to tell me that this lot know how to manage the books
http://www.treasury.govt.nz/government/financialstatements/yearend/jun16...

That link says that we have 300 billion in assets but 200 billion in liabilities which means we have 100 billion more than we owe?

You do realize that debt is an amazing tool which can be used for incredible economic benefit? Have you worked out if we get paid more for holding our assets than we pay for our debt?

A simplified example would be if you could borrow at 3% to lend at 5%. Would you do it? Did you factor in that as at the end of the 2008 financial year we had 100 billion less in assets than we do now?

most of the assets are not income producing assets, they cost to hold, schools, hospitals , prisons government buildings.
in fact they are looking at building a new building for mps because the one they sold and lease back has now become more expensive over the long term than owning
we have sold off most of the income producing assets years ago and don't have many left.
so when you eyes light up on the assets that you could borrow against remember the money borrowed gets spent, and the money needed to look after them comes from me and you

We now have 100 billion more in assets than we did in 2008 but only 30 billion of that is in "Property, plant & equipment" (schools, hospitals , prisons government buildings, etc). I don't personally think 30 billion more invested in schools, hospitals & prisons over 8 years is mismanagement of funds. That still leaves 70 billion more in cash assets now than in 2008 and a NET financial position of 100 billion which is the same as 2008.

Also noteworthy is that from 2008 - 2016 the world has experienced a recession, the world economy was booming while Labor was in power, why didn't we manage to build reserves then?

True, but keeping all those govt drones employed and benefits flowing thru the GFC, and helping CHCH will be significant costs. No tax cuts, spend it where it is needed and pay of debt please.

Really Joe Public?... From the first treasury update in Dec 08 upon Nationals arrival in office...

"Core Crown net debt is also expected to rise to $44.7 billion or 20.7% of GDP by
June 2013. The increase in net core Crown debt is owing to the run-down of
NZDMO financial assets and increases in borrowings expected during the forecast
period."

"Gross debt is forecast to increase by $40.3 billion in nominal terms and as a

percentage of GDP by 15.6% over the forecast period. By the end of the forecast

period in the June 2013 year, gross debt is expected to be $71.6 billion or 33.1% of

GDP."

http://www.treasury.govt.nz/budget/forecasts/eff2008/eff08.pdf

and from Armstrong in the Herald:

"National had barely got its feet under the Cabinet table before the Treasury further revised its forecasts and projected deficits of $6 billion-plus.

So much for “careful management”. Labour is relying on short memories to rewrite history, however. It won’t fool everybody. But in the heat of an election campaign, it is easy to spout fiction and difficult to establish fact."
http://m.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10762347

John Armstrong lol, he's about one step down from Mike Hosking.

Good spot profile ... apologies I will amend my comment. My figures were net debt not public debt

Summary of Direct Public Debt
2007 31.1 Bn
2008 31,9 Bn
2009 41,2 Bn
2010 48,8 Bn
2011 68,1 Bn
2012 73,8 Bn
2013 71,1 Bn
2014 76,6 Bn
2015 78,3 Bn

Total Direct Debt up 250% under Key !!!

Sources:
http://www.treasury.govt.nz/economy/overview/2012/37.htm
http://www.treasury.govt.nz/economy/overview/2016/41.htm

So treasury were spot on in 2008 (note 2008) with their 2013 forecast. Once Labour has the debt super tanker on course in 2008 it was hard to turn around especially with GFC, earthquake, redundant train sets, free student loan and other hand out head winds thrown in. $10B is a long way off $71B. Thanks for "spending the lot" Dr. Cullen. What would have you suggested National cut to avoid the $71B treasury forecast when they came to power?

not the revenue, like they did as soon as they got in office.
plenty they could have cut straight away , free student loans in the first term would not have hurt them to much at the ballot box, now to hard to do

I would suggest they cut workings for families, which Key actually did propose before he got elected (and before a minion whispered in his ear that shooting the sacred cow wasn't a good idea for someone trying to elected at any cost).

yes I do not like that scheme and that's one they should have rolled back first term, another missed chance that will never come again
I hate the concept of taking tax off me filtering through governments departments that take a cost out before what is left gets to the end user to spend
better to reduce the low down tax , I like the aussie idea of the first X amount you earn is tax free

Too right taxing someone then giving the money back minus public servant expense is woeful. Amazing middle class welfare WFF was not at least modified - in some cases more is lost in WFF losses than is gained from a payrise. If you get a payrise you should not suffer for it.

I am calling you out!! Was this something you discuss with your mates at the pub to justify you not working?. So many people on here whinge and spout their mouths off you would think that our tax system is corrupt and not working when in actual fact they dont know anything about it. National must be bad because people like you say so based on what other people have told you. Considering that to earn the maximum WFF entitlement your household income needs to remain under $36k odd. If you earn over the maximum your WFF entitlement is decreased by a factor of 21 cents per dollar you earn over that threshold. You are still better off cash wise to earn more and take the pay rise and take the 21cent abatement no matter what.

The problem wasn't people on the maximum as per your example - it was people in the lower incomes taxed individually but receiving WFF as a family income. If it's been fixed great - but there were cases of people having margin tax rate of 90-100%. Anything over ~40% sends the wrong signals

Taking tax off the middle classes and giving it back to them minus bureaucracy isn't only corrupt it's an utter waste of resources. Key stated WFF was communism by stealth then didn't have the balls to repeal it when he had the chance.

Tax cuts are good , I will be voting for this idea , certainly will NOT be voting for Capital gains Tax ......... like a turkey voting for Christmas

A modest tax cut would be welcome. The income thresholds where tax rates kick up haven't been increased in almost 20 years.

Fiscal drag has been generating the Government's surpluses since the early 2000's. If it hadn't been for the outrageous escalating pension costs, the Government would've been in surplus years ago.

To those who advocate tax cuts... Do you actually have children in school, brothers in hospital or mothers in dementia homes? Do you realise how poorly paid many of the professionals in these areas are? How hard they work? And how unattractive that essential work can be given the pay and the hours?

Tthe dole takes up close to a third of our tax. Welfare(13%), super(17%) & housing benefits(3%). How about we reduce these and divert them into health, education and law & order.

welfare includes the 2 billion paid out in accommodation supplements, cut that to nothing then we could have our tax cuts

I concur, nothing worse than discovering that your tenants are on the dole! I'd take the small hit in rents in order to sort the fiscally prudent tenants from the ones on the dole! based on the current shortage of accommodation I'd be surprised if the hit to the rents even eventuates!

accommodation supplement is paid to a lot more people than those on the dole and only paid to private landlords, it is a subsidy to a "private business"
Cut that and the tax write off against personal income, another subsidy
and cut the bottom rate of tax, make the first 20k free,

Accommodation Supplement is a weekly payment which helps people with their rent, board or the cost of owning a home.
Who can get it
You may get an Accommodation Supplement if you:
•have accommodation costs
•are aged 16 years or more
•are a New Zealand citizen or permanent resident
•normally live in New Zealand and intend to stay here
•are not paying rent for a social housing property. (Social housing properties are provided by Housing New Zealand and approved community housing providers.)
It also depends on:
•how much you and your spouse or partner earn

How about cutting the working for families rort. That would save a bob or two.

They can put it back from whence it was stolen - health, education, housing, police, infrastructure etc.

I've read all that and i am none the wiser, which (I think) is how the government likes it. On the surface it sounds like revenue exceeded expenses and the message is that this is a business minded government. If so what is all this migration about? What are our industries that are screaming out for migrants? Do we manufacture mobile phones or wheel barrows? No, we import migrants so builders have clients, whitewear sellers have consumers and construction companies build roads and the banks hold mortgages.
And what about external debt?
Then there is the claim about incomes rising:

A conventional economic analysis of large-scale immigration impacts
Before we proceed with the assessment of the evidence in the Stocktake, it is useful to set out a conventional way of looking at the economic impact of large-scale immigration, which captures important elements that are ignored or glossed over in the official immigration benefit story

The distinctive feature of the New Zealand economy is that land is an important input into the productive process. This is obvious with the agricultural,fishing and forestry sectors but it also applies to international tourism. In a simple model of the New Zealand economy where the supply of land is fixed, and New Zealand’s isolation means it is not a ‘natural’ location for the production of a broad range of internationally traded goods and services, then an increase in the labour supply through large scale immigration will reduce the
marginal product of labour. As a result:

Real wages will fall

Owners of land will benefit

There will be an outflow of ‘native’ labour in search of higher wages in Australia

The economy will be bigger, but average incomes will fall

Resources will flow into low value service production.

http://www.tailrisk.co.nz/documents/TheSuperdiversityMyth.pdf

Michael Reddell is O.K with the above but Geoff Simmonds (Morgan Foundation) isn't convinced. Anyone working in the tourist industry where bus companies were the most profitable business in the 1990's but now can't afford land for their expanding fleet (drivers wages are just a tad above the minimum wage) can appreciate Ian Harrison's model.

It's like the economy is turning to eating its own arm off for sustenance

It is fantastic they posted 1.8billion.

Instead next year, could they drop the Cayman Islands, Douche Bank and Australia off the address box and leave it in the local Kiwi Bank as then we could all be safe, not sorry, they brought in an OBR regime to safeguard the wastrels....losses.

Oh and can we all go back to the past for the future and have fully funded debt loans covering cash deposits, not the crap deposits they eschew today.

I think then we might be the Banking Hero of the South Seas, that Mr Keys wants us to become.
We could dole out, way better than doling in, with a bright new future for our currency going forwards.
We should not be in debt at all, it is what holds us back as a Nation, as this one might tell you....

“The way to stop financial joyriding is to arrest the chauffeur, not the automobile.” Woodrow Wilson

And as I do not have a Ministers BMW 730 Saloon to cart me around, I think there might have been more truth in the saying, more than he ever imagined, but I would never blame the Chauffer...for Big Noting...today.

Personally I have found when having money lost by the state, exceeds all expectations, they will come digging into the Savers reserves at any cost..but I am sure the Big Noter's funds will be safe..

One of the people that $180bill has been stolen from http://www.stuff.co.nz/national/health/85208740/terminal-breast-cancer-p...

Aren't we such a considerate, egalitarian society....

Aren't we though

If you can't run up a reasonable surplus after 8 years of trying, selling off 6 billion or so of the family silver, running up at least 60 billion in debt, and running every public service in NZ down to the ground, then you may as well give up "managing" the countries books.
It's off the back of over immigration, and a property bubble anyway, and bubbles long term are often a disaster.

Or as one card put it tonight on Karyn Hay's show, you go out to work all year, but you don't pay any bills.

I find it interesting that some comments on this thread state "oh im more qualified to spend my money via tax cut" than what the govt is....

So i ask this question.... how many tax cut dollars went into housing speculation?
Baby boomers really need to be careful about their precious non-productive bricks and mortar.

Its time the pension was means tested. No rich prick with more than one house or a job past the age of 65 should get a cent of my hard earned taxes.

And student loans should have interest. Its time the millennial knows the risk of borrowing for a crappy degree which is hardly going to get you a job at the end of it.

Pay down the debt Bill and do it fast because your party is the party that has racked up the majority of this nartions debt over the last 45yrs. No tax cuts while you still have a noose of debt around our neck.

Oh and i know why its a surplus. ...we all know high credit spend buy the average bloke fills the coffers. Credit is money.