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News and Updates from Bill English

23 January 2015
Deficit $1.5b in five months to November

Lower than expected operating expenses and higher than forecast customs and excise duties contributed to an operating balance before gains and losses (OBEGAL) deficit $121 million better than forecast for the five months to November, Finance Minister Bill English says.

The OBEGAL deficit was $1.54 billion - down from the $1.66 billion forecast by the Treasury in the Half-Year Update in December, although tax revenue continued to be weaker than forecast.

Even though Core Crown tax revenue was $1.6 billion (or 6.7 per cent) higher than at the same time last year, it was $94 million lower than forecast in the HYEFU.

“Continued weakness in tax revenue against forecast again highlights the challenge of returning to surplus this year,” Mr English says. “However, the smaller than expected OBEGAL deficit reinforces the Government’s belief that the strong underlying economy and responsible fiscal management can deliver a surplus when the final government accounts are published next October.

“Current economic conditions - stable growth, low inflation, growing employment, and low interest rates - are helping New Zealanders to get ahead. But these conditions are also making it more challenging for the Government to achieve its fiscal objectives in a timely manner.”

The Government accounts for the five months to November show GST revenue was $56 million (0.8 per cent) below the HYEFU forecast and corporate tax was $45 million (1.4 per cent) below forecast. These shortfalls were partially off-set by customs and excise duties being $65 million (3.6 per cent) above forecast.

Core Crown expenses for the first five months of this financial year were $67 million lower than forecast at HYEFU – with the variance being spread over a number of departments.

“This shows the Government is continuing to responsibly manage its finances. The challenge is coming from revenue, which the Government has much less control over,” Mr English says.

21 January 2015
Low inflation helping households get ahead

Low inflation is helping New Zealand households get ahead, with wages on average continuing to rise faster than the cost of living, Finance Minister Bill English says.

Inflation was only 0.8% for the 2014 calendar year, according to figures released by Statistics New Zealand today. In the three months to December, New Zealand experienced negative inflation, with the consumer price index falling by 0.2%.

Petrol prices fell 5.7% in the December quarter, and have continued to fall in the new year. But lower inflation is not just being driven by cheaper imports, with annual inflation for non-tradables – a key measure of domestically driven inflation – being the lowest since early-2013 at 2.4%.

“Over the last few years, the Government’s commitment to fiscal restraint and economic reform has also reduced inflation pressures. This is allowing interest rates to stay lower for longer, which is enabling more household savings, and creating better conditions for investment and exports,” Mr English says.

“Current economic conditions - stable growth, low inflation, more jobs and low interest rates - are helping New Zealanders to get ahead. Households with mortgages have the double benefit of low cost of living rises and lower mortgage servicing costs, which will be particularly welcome in regions with increasing house prices.”

Like many developed countries, New Zealand is adjusting to a low-inflation environment. While it has many benefits – particularly in making household budgets stretch further – it has implications for wage increases.    

“Over the last four years, the average wage has increased from around $49,500 to $55,500. Wages are expected to continue to outpace inflation, but if inflation remains low the dollar value of future wage increases may be smaller than previously expected,” Mr English says.

“This is particularly true in the public sector. Lower inflation means the Government will have to work even harder to control its spending to get its books back in surplus, so public sector wage rises will remain restrained.

“Although there is continuing global economic uncertainty, New Zealand is doing well and New Zealanders are reaping the benefit of their hard work. Despite these good economic conditions, there will be no loosening of the Government’s purse strings.

“The Government remains committed to delivering better public services while staying on top of spending, as we have done over the last two parliamentary terms,” Mr English says.

18 December 2014
Economy grows solidly in September year

New Zealand’s economy remains one of the fastest growing in the developed world, confirming that the Government’s economic programme is taking New Zealand in the right direction, Finance Minister Bill English says.

Statistics New Zealand today reported gross domestic product expanded by 1.0 per cent in the September quarter. This took annual growth - from the September quarter 2013 to the September quarter 2014 - to a revised 3.2 per cent. This is the same as annual growth to June 2014, and equals the highest annual growth rate since September 2007. Average annual growth was 2.9 per cent.

“We are in the unusual but encouraging situation where we have solid economic growth, more employment and higher wages, but few pressures on inflation,” Mr English says. “This suggests New Zealand’s economic growth potential before inflation sets in - essentially the speed limit of the economy - is higher than expected previously.

“Although lower inflation, and the consequent lower tax revenue, is making it more challenging for the Government to return to surplus this year, it is good for businesses and families who are facing lower price increases than would normally be expected at this point in the economic cycle.

“Strong economic growth benefits all New Zealanders. Around 72,000 jobs have been created in the past year, and the average full-time wage is forecast to rise by $8,000 to around $64,000 by mid-2019. But long-term improvement in New Zealanders’ fortunes will occur only if we stick with our successful economic programme,” Mr English says.

Growth in the latest quarter was driven by agriculture (up 4.7 per cent), mining (8 per cent) and manufacturing (2 per cent).

New Zealand’s 3.2 per cent GDP growth in the year to September compares with 2.7 per cent in Australia, 3.0 per cent in the United Kingdom, 2.4 per cent in the United States, 2.6 per cent in Canada, 1.2 per cent Germany, and a 1.2 per cent decline in Japan. Average growth across the OECD was 1.7 per cent.

16 December 2014
Government focused on surplus in 2014/15

The Government believes an OBEGAL surplus is achievable this financial year, despite Treasury’s latest forecast today predicting a $572 million deficit (0.2 per cent of GDP) for the year to 30 June 2015, Finance Minister Bill English says.

“These forecasts emphasise the unusual conditions the New Zealand economy is experiencing,” Mr English says. “Treasury is predicting solid growth, growing employment and low interest rates, which help New Zealanders to get ahead. But at the same time, falling dairy prices and low inflation are restricting growth in the nominal economy and government revenue.

“This is making it more challenging for the Government to achieve surplus in 2014/15. However we remain on track to reduce debt to 20 per cent of GDP by 2020.

“Although this latest Treasury forecast predicts a small deficit for the current year, we believe the strong underlying economy and responsible fiscal management can deliver a surplus when the final government accounts are published next October,” Mr English says.

Previous forecasting rounds show the outlook can change significantly between the Half Year Update and the final accounts being published. As recently as 2012/13, the final OBEGAL deficit was $2.9 billion smaller than the previous HYEFU forecast.

“The Government has a track record of sticking to our spending plans to protect the most vulnerable and to provide certainty for users of public services. We won’t be changing that approach,” Mr English says.

“Despite the lower than expected revenue forecasts, the Government’s ongoing commitment to spending restraint means the public finances continue to improve significantly each year.”

The OBEGAL deficit has shrunk significantly from a peak of 9 per cent of GDP in 2010/11. Net core Crown debt is expected to peak in the current fiscal year at 26.5 per cent of GDP and then reduce to 19.1 per cent of GDP in 2020/21. A residual cash surplus is now expected in 2017/18, a year earlier than forecast previously, which is also when the Government intends to start repaying debt in dollar terms. 

The Budget Policy Statement released today confirms that allowances for Budget 2015 and Budget 2016 have each been reduced to $1 billion. The allowance has been re-phased over three years to provide a $2.5 billion allowance in Budget 2017.

“This will allow us to consider modest tax cuts and/or additional debt repayment in Budget 2017, as economic and fiscal conditions allow,” Mr English says.

Treasury’s forecasts suggest that New Zealand’s economic growth potential before inflation sets in - essentially the speed limit of the economy - is higher than estimated previously.

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10 December 2014
Below forecast revenue highlights challenge

Government revenue continues to grow more slowly than forecast in the Budget, again highlighting the challenge of returning to surplus this year, Finance Minister Bill English says.

For the four months ended October 31, the operating balance before gains and losses (OBEGAL) deficit was $1 billion - $260 million larger than forecast in the Budget Economic and Fiscal Update in May.

Even though Core Crown tax revenue was $1.5 billion (or 7.9 per cent) higher than at the same time last year, it was $97 million lower than forecast in the Budget.

“This emphasises the unusual conditions the New Zealand economy is experiencing,” Mr English says. “We have stable growth, growing employment, and low interest rates, which are helping New Zealanders to get ahead. But at the same time, falling dairy prices and low inflation are impacting on the nominal economy and government revenue.

“This is making it more challenging for the Government to achieve its fiscal targets as quickly as it would like.”

The Government accounts for the four months to October show GST revenue was $200 million (3.5 per cent) below the Budget forecast and source deductions were $75 million (0.9 per cent) below forecast. These shortfalls were partially off-set by corporate tax revenue being $129 million (4.6 per cent) above forecast and other individuals tax being $70 million (5.3 per cent) higher than forecast.

“Treasury advises that these tax trends have been taken in to account in the Half-Year Economic and Fiscal Update forecasts that will be released next week.”

Core Crown expenses for the first four months of this financial year were $118 million higher than forecast – due largely to the one-off indemnity cost associated with Solid Energy. Excluding that cost, core Crown expenses of $24 billion were just $15 million over Budget.

“This shows the Government is generally doing a good job of controlling its own spending. The challenge is coming from revenue, which the Government has much less control over.”

Although core Crown tax revenue was weaker than forecast in the Budget, it was higher than anticipated by the more limited set of forecasts available in Pre-Election Fiscal Update in August.

However, Treasury says that due to sharply lower dairy prices and ongoing low inflation, the current rate of revenue growth is unlikely to continue over the rest of this financial year.

“The HYEFU next week will provide a fresh set of forecasts on the fiscal situation, on New Zealand’s economic growth and job growth, as well as wages and unemployment.”