The Crown's tax take has grown quicker than its expenses, putting the Government in a position better than forecast in the Budget, debt target reached 4 years early

Finance Minister Grant Robertson

The Coalition Government’s first set of annual financial results show its books are in good shape.

However Finance Minister Grant Robertson cautions the Government isn’t “awash with cash".

The Crown posted a larger than expected operating balance before gains and losses (OBEGAL) of $5.5 billion in the year to June 30, as its tax revenue grew faster than its expenses.

This figure was $2.4 billion above Treasury’s Budget 2018 forecast and $1.5 billion above the surplus posted in 2017.

Revenue from source deductions (or PAYE) grew 7.3%, goods and services tax 6.7% and corporate tax revenue 6.2%.

Robertson pointed to these figures reflecting a strong economy.

Yet turning to expenses, which only grew 5.1%, he warned this was largely due to “timing issues” and would “reverse out” in the 2018/19 accounts.

Quizzed on the extent of this, Robertson said about half of the 1.4% (or $1.1 billion) under-spend, relative to what Treasury projected in the Budget, is likely to be spent in the next year. 

Looking at expenses as a portion of gross domestic product, these were pretty stable at 36.0%, while revenue was up from 37.7% to 38.0% of GDP.  

Overall Robertson downplayed the surplus somewhat, noting costs down the line connected to the Government's investment plans, as well as some global economic instability.

He wouldn’t rule tax cuts in or out, saying this was in the hands of the Tax Working Group.

He said he had asked it to ensure its recommendations were revenue neutral.

Debt target hit

The accounts also show the Government, as at June 30, achieved the debt reduction target it had set out to reach by 2022.

Net core Crown debt was equivalent to 19.9% of GDP, just below the 20% goal.

Budget 2018 had forecast net debt to be at 20.8% of GDP by June 2018.

Robertson said the current position “gives us the space required to make the critical infrastructure investments that New Zealand needs, while still building a buffer”.

Crown financial results

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Capital expenditure high 

Turning away from the Government's operational spend, and looking at its net capital spend on upgrades to physical assets and Crown entities, this grew by $2.2 billion to $5.9 billion - the highest level since 2009. 

Of this amount, a net $1.6 billion was spent on state highways, $400 million on KiwiRail, $300 million on the City Rail Link, $800 million on school property, $500 million on defence equipment, $300 million on hospitals, and $500 million on contributions to the Super Fund.

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67 Comments

Good thing they canceled those tax cuts for middle New Zealand we definitely couldn't afford. They didn't need to defer that to a Tax Working Group, did they?

I agree it is a good thing, $20 a week isn't worth it compared to a having low debt government and a strong economy. Lets see what Americans what they think of Trumps tax cuts in 10 years time when their government is insolvent...

The US Govt is perpetually insolvent, if Robbo doesn't use that money to urgently roll out badly needed infrastructure (think LRT in Auckland, regional rail to the Golden Triangle, re-energise EQC and open Wellington up to friendly fire calibration from our military allies) then he has a moral obligation to give it back to taxpayers.

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Not necessarily - the government is still in debt remember. The more they pay off, the bigger our recession buffer.

Labour saved our arse in the last GFC by paying off huge amounts of government debt over the previous decade. National took all of the credit even though at the time they were complaining about the surpluses. Sound familiar?

"Who are the public going to believe at the next election - a Labour Government which has run nine years of huge surpluses and which miraculously finds an appetite for tax cuts just before an election, or an incoming National Government that's committed to ongoing tax reductions to improve our competitiveness?"

- John Key, October 2006

Short memory Jimbo NZ was already a year into a recession a year before the GFC and what about the collapse of the Finance companies many of whom were bailed out by Nationl.

ha ha ha -- they have been insolvent for decades -they kee inventing new numbers for what they owe it wont happen - but all those Americans who now have real jobs will probably be quite happy - lowest unemployment in 50 years !

Were they tax cuts or were they adjustments to put tax bands where they were in the past? Will any govt ever link tax bands to inflation?

Cullen tried to, at the 2005 election. National labelled it the "chewing gum tax cut" because for most people it would be less than $10/week as a tax cut - at the time it was brought in.

The plan was to index the tax bands to inflation and have them automatically re-adjusted every 3 years.

Labour couldn't get commitment to this from the Greens and the Maori Party, so after the 2005 election they didn't have enough votes to pass it.

National lambasted it so strongly because automatic indexation of the income tax thresholds would rob them of their major election plank - promising tax cuts. When tax cuts are automatic every 3 years, it makes National's job of selling tax cuts far harder.

Nice

There you go.
All is well in Wellington.
Yeah right.

'For over a decade now, what is assured is two things simultaneously: 1. That if central bankers have to get involved there is already a big problem. 2. When they do get involved it never ends well. I could add a third, that this is always “unexpected”, but that’s really derived from Points 1 & 2.'
https://www.alhambrapartners.com/2018/04/25/its-the-track-record-that-is...

now give it back to the workers!

By borrowing more money?

no, the increase in tax revenue is predictable. Heard of bracket creep? The tax cut that wasn’t a tax cut? It’s all very well increasing the government coffers; however, this is at the expense of taxpayers, and future development. We may get to the point where government debt is zero. However private debt is at dangerous levels. We had a similar situation in 2007/2008. Clarks government overtaxed, over spent (on poor investment e.g. Kiwirail) and bought the economy to its knees. Prior to the gfc Treasury forecast big deficits for the next 10 years. Thank Christ Key was voted in. This is DeJaVu.

Isn't private debt largely mortgage debt? Wouldn't a tax cut only inflate that?

Kiwirail...having to fix a mess caused by privitisation that only enriched a few folk by running down the stock and infrastructure. Deja vu indeed.

Private debt is heading (slowly) towards far less dangerous levels with the LVRs and the recent tightening of lending standards.

Give credit where credit is Due Jimbo. the reason we are seeing these surpluses is because of Nationals good financial management of the economy. Just think of how good the economy would be really purring along now if we did not have these idiots at the helm. Plus the workers would have seen real returns in their wages, not given with one hand and taken away with the other hand.

Yep, pay those teachers what they deserve. COL cannot say they don't have the money to now.

NZ imports about $60Billion per year. Most of it will be hit by GST. NZD drops 10%, Imports increase by 10% GST collected increases by probably >$1billion. With magnified effects through inflationary effects. In short term Govt wins, but Nzer's take a 10% wage cut, pay more tax and spend less, slowing economy.

2 or 3 months down road (typical lag of inflation behind currency drop) import prices spike inflation killing GDP growth - possibly leading to recession if severe. NZD started dropping mid April, didn't show up in 2Q results but will in 3Q GDP growth (reported in December) Gonna be a bleak New Year.

You didn't mention exports...

It's always easier to ignore that stupid accounting practice of balancing stuff.
It makes your arguments much simpler when you do so.

Govt doesn't collect GST on exports. NZ imports far more than it exports, current account deficit is nearing $10billion per year (3.3% of GDP!!). NZD dropping is not good news, it boosts GDP in short term, but hurts in medium term, and given primary production capacity constraints is unlikely to result in any boost to production with higher export prices.

No - for the simple reason there is no GST on exports so his argument remains perfectly valid.

In this situation there is no offset.

"but Nzer's take a 10% wage cut" - just from the small GST increase?

No, because everything you consume will cost 10% more while your income remains the same. Therefore, every Kiwi is effectively getting a 10% cut on their wages.

Except exporters.

Excluding owners of export businesses.

Yeah, a pay cut for all those who work for a living or who rely on interest on their savings (i.e. pensioners), to protect overextended speculators from interest rate rises.

Ignoring the housing crisis and pretending it didn't exist...Now that's coming home to roost.

Yea, let's give more to pensioners. Yay for turning a certain age, have even more money. Meanwhile, the people currently working to pay for it and trying to fund their own financial security...just keep coughing up more I guess?

Jimbo Jones you have no idea. Just like the COL

"Revenue from source deductions (or PAYE) grew 7.3%, goods and services tax 6.7% and corporate tax revenue 6.2%."
These positives raises the query if maybe the economy is doing a little better than the surveys suggest??
However, the old story "one swallow does make summer" - but these figures are not an indication of a bleak winter period.

Those are outstanding increases. The economy is very hot at the moment regardless of what business surveys think...

Take the Blinkers OFF JIMBO. please

Business surveys bare little resemblance to reality. Too many right leaning business owners who just spout the tax hate rhetoric.

Forced inflation? Govt initiated.
So hiking tax on cigarettes and fuel and upping minimum wage may have contributed to the so-called rosy numbers but I don't buy it.

Time to double down. 16% by 2021/2022. A buffer is only prudent.

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Hosking will be fuming..whats he going to write about this week...??

Hosking knows very little about public accounting.

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You could have saved yourself a wee bit of time there by putting the . after "little"

The bookies have just shortened the odds on more industrial action before year end.

Good one Hamish. and the Bookies would have it right

Well done National for making this possible.
The PREFU said that the country's finances and economy were in good shape.

The PREFU said that the country's finances and economy were in good shape.

And is little more than economic ignorance to suggest as such. Govts don't operate like h'holds nor should they. A budget surplus is not necessarily a sign of good economic management, whether it's under Labour or National.

I seem to remember the Clarke Cullen years and their fiscal surplus was more than offset by an explosion of private debt. Which is more dangerous? Public debt that in NZ can never be defaulted on ? Or household debt that can be?

How do you figure we can never default on our public debt?

Because the government owns the keyboard attached to the excel spreadsheet that creates the NZ dollar and we only borrow in the NZ dollar. We can only default if we choose to. See Japan. See the US. See the UK. There is a magic money tree.
If you don't think there is a magic money tree what was QE but the creation of reserves from nothing to buy government bonds? Reserves could be created to pay off bond holders at any time the government instructs the central bank to do so. Yes it could create inflation. But we can't default. Unless we do something looney like peg our currency or borrow in US dollars. To quote Warren Mosler "Governments, using their own
currency, can spend what they want, when they want, just like the football stadium can put points on the board at will. The consequences of overspending might be inflation or a falling currency, but never bounced checks."

Because the government owns the keyboard attached to the excel spreadsheet that creates the NZ dollar and we only borrow in the NZ dollar. We can only default if we choose to. See Japan. See the US. See the UK. There is a magic money tree............But we can't default. Unless we do something looney like peg our currency or borrow in US dollars.

Thank heavens for people like you. Ufortunately, many elected polticians won't understand this.

Warren Mosler
"Governments, using their own currency, can spend what they want, when they want, just like the football stadium can put points on the board at will. The consequences of overspending might be inflation
or a falling currency, but never bounced checks."
http://moslereconomics-kg5winhhtut.stackpathdns.com/wp-content/powerpoin...

And you don't think creating massive inflation is just as destructive as defaulting?

Massive inflation is bad. But it's not defaulting. Once you've got over the fact that sovereign currency issuing governments can't default, you get over fiscal policy hypochondriasis and see the functional quality of the right amount of government spending, which might mean continuous deficits in a country with already high household debt who now need to repair their balance sheets and a persistent current account deficit (Trump has cottoned on to this hence US growth). Too much deficit spending will cause an inflation problem if the economy is at full capacity. But that is not what we're talking about. Too much of any kind of spending from any sector can cause inflation. As always, the empirical reality that is Japan is what one needs to explain if you want to tell the "default around the corner" story - even the default via inflation story (where is the inflation from the BOJ's money tree financing Japanese government deficits?). Money printing whilst destroying your supply side (Zimbabwe, Weimar) will get you hyperinflation of course.

So, answer this for me - when the pension funds and private govt bond investors realise that they will never get their capital back from their govt bonds, will the RBNZ step up and buy every dollar of govt debt issued with said printed money? If it then becomes so simple, why doesn’t the govt just abolish all taxes and get the RBNZ to buy/print all of its debt/spending requirements? My other key question is whether this has ever worked before in history...I don’t think it has..?

To hopefully answer your question, the world would lose confidence in our currency. If something can be created for nothing it’s worth nothing. There’s also the implicit guarantee that debt will be paid back as gov and the rbnz have the forced backing of NZ taxpayers. That’s why we accept freely created money from countries but not individuals.
For your second question, never...

We accept the currency of the NZ government because we all have to pay taxes in it. QE created a lot of something for nothing and yet very low inflation......

QE did create inflation.. just in different places. Namely the asset bubbles. The cost of buying a share of future company earnings on the S&P500 has doubled since 2008. That's 7% inflation right there, just not in the consumer goods or wages categories

http://www.multpl.com/shiller-pe/

The RBNZ could just buy back all the debt. Then savers would have a whole lot of cash in the bank that they'd need to save somewhere else safe. Just cause you cash in a bond doesn't mean you go out and spend it all on consumption causing an inflationary boom. Presumably the money was in bonds because it was needed to be saved. Hence why you hear moans from some in the NZ financial community now and again that their aren't enough bonds to buy! Governments need to tax, not because they can't spend without taxing, but because they need to make sure that there isn't too much spending in the economy and to redistribute purchasing power and discourage certain spending. But they can always spend. Their checks will never bounce. Unless they choose to let them bounce.

Just spitballing here, but I think you might get away with one decent round of printing to pay your debts, but then you might discover that the next time you want to create more debt the interest rate you need to offer will rise dramatically, or the market might decide that they aren't interested in bonds denominated in South Pacific pesos, and insist on a currency they trust.. probably USD.

BOJ, ECB, FED, BOE they all printed money to buy back government bonds over the last decade of QE! How do you think Italian yields fell to such low levels? Cause Mario Draghi said "I'll do whatever it takes" hit the 000 button on the excel spreadsheet , created some money and bought the bonds in the secondary market so as to guarantee them. The BOJ does that all the time too. Hence why the bond vigilantes have no power to control interest rates in Japan. Japan finances its deficit by the BOJ printing money and buying up the debt their treasury has issued. It will never need to be 'paid back'. If you don't believe me, believe Adair Turner - former governor of the Bank of England. Excessive deficits that put more money in the economy than there are real goods to buy will cause inflation and currency depreciation. That's why we have taxation - to remove spending power. But governments can always purchase whatever is for sale in their currency whose printing press they own. And they can only chose to default on debt in their own currency if they choose to. The point is here that when households save and foreginers save in our currency we have demand leaking from the circular flow that is the economy. The government can use its power to create money to fill that gap and stimiulate enough spending to create full employment and promote the conditions for more investment. That is what Japan is doing. Perhaps not enough still. But that massive debt to gdp will never be "repaid" through austerity in the traditional sense. And it won't matter.
https://www.businessinsider.com.au/lord-adair-turner-on-central-banks-in...

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Were is Steven Joyce these days.
National's financial titan was only 16 billion out .

Fell into his $11b hole?

think you will find that they origninaly expected to spend a lot more - and then discovered its pretty hard to build more houses without the odd extra worker - or developer or proper planning processes -

oh - and they cancelled $100 million of essential Mental Health spending - reduced the prison build by 75% increased taxes oops levies by a few hundred million

and cancelled tax cuts planned for working people like teachers, nurses , doctors

it all helps -!

I suspect the Government is starting to discover the ridiculous nonsense that the big Council's impose on anyone trying to get a building or resource consent. Hard to build without consent.

think you will find that they origninaly expected to spend a lot more - and then discovered its pretty hard to build more houses without the odd extra worker - or developer or proper planning processes -

oh - and they cancelled $100 million of essential Mental Health spending - reduced the prison build by 75% increased taxes oops levies by a few hundred million

and cancelled tax cuts planned for working people like teachers, nurses , doctors

it all helps -!

There is no surplus, creative accounting has turned a 7.5billion deficit into a 5.5billion surplus. The govt has borrowed $6.5 billion off the books through housing NZ and NZTA, paying higher interest costs for the sole purpose of preventing it from being counted as govt debt.
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12104552
Then there is apparently another $6.4billion boost that has been created by creative revaluation of the National State Highway Network: https://www.trademe.co.nz/Community/MessageBoard/Messages.aspx?id=177414...

Wonder if IRD will punish them for miscalculating their provisional tax obligations......? I'm sure if I had a 'surprise' few billion turn up out-of-the-blue they'd have a few words and fines in the pipeline.