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Government turns out unexpected operating surplus

The New Zealand government posted an unexpected operating surplus in the first five months of the financial year as rising consumer spending bolstered GST and a robust labour market boosted income tax.

The operating balance before gains and losses (obegal) was a surplus of $125 million in the five months ended November 30, compared to a forecast deficit of $457 million and turning around a shortfall of $768 million a year earlier. That was largely due to a 5.5 percent increase in the tax take to $30.41 billion surprising on the upside with GST about $200 million ahead of expectations and source deductions also tracking $200 million more than forecast. A delay in treaty settlements also saw expenses tracking $161 million below expectations at $33.28 billion.

"Underlying GST is expected to remain above forecast as the GDP data released by Statistics New Zealand on December 21 showed that growth in the September quarter in both private consumption and residential investment was above forecast," the Treasury said in comments accompanying the accounts. "Some of this variance is expected to be timing differences, which are expected to reverse out at the next GST filing due date in January."

The Treasury officials were more unsure of the increase in source deductions, saying it was too early to say whether that was monthly volatility.

The November Crown accounts are the first to capture the new administration, which took office in late October. Finance Minister Grant Robertson outlined the numbers behind the Government's 100-day plan at the December half-year fiscal and economic update, projecting smaller surpluses than his predecessor over the next two years before generating bigger ones at the end of the forecast horizon.

"While it’s too early to fully establish whether all of this positive variance will remain through the year, some of it is expected to remain," Robertson said in a statement. "The numbers are an initial sign of how businesses have been performing and how consumers have been spending in recent months."

The accounts show net debt at $61.8 billion, or 22.2 percent of gross domestic product, down from $63.45 billion, or 24.8 percent of GDP, and some $700 million below forecast with a smaller cash deficit than expected of $2.9 billion and more currency in circulation, which lifts available financial assets.

Total capital commitments stood at $19.79 billion as at November 30, up from $18.29 billion a year earlier, of which $6.96 billion is earmarked for state highways and $3.12 billion for land and buildings. Robertson has signalled capital investment as a key focus for future budgets with some $41.7 billion of spending expected over the next five years.

The operating balance, which includes unrealised movements in the value of the Crown's investment portfolio, was a surplus of $2.39 billion, beating a forecast surplus of $1.65 billion, bolstered by $3.9 billion of investment gains recovered in the New Zealand Superannuation Fund and Accident Compensation Corp portfolios. That was offset by a $1.4 billion actuarial loss registered on ACC's long-term liability, which was valued at $40.91 billion as at November 30.

The Crown's net worth was $113.02 billion as at November 30, up from $94.1 billion a year earlier.

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