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.Tweet
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.Tweet
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.Tweet
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.Read full article
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.”Tweet
New Zealand households have together saved more than they spent over the past five consecutive years – the first time this has happened since 1989-94, Finance Minister Bill English says.
The latest revised annual National Accounts (Income and Expenditure) compiled by Statistics New Zealand show aggregate household savings – which includes the impact of debt repayment - totalled $2.8 billion in the year ended March 2014.
This represents a positive savings rate of 2.1 per cent of household disposable income.
The revised figures show that before 2009 – the year after the National Government was first elected - the household savings rate had been negative in all but one year since 1995.
“This news is the latest in a series of results that show households are getting ahead and that the economy is steadily rebalancing towards higher savings and away from borrowing and consumption,” Mr English says.
“Combined with average hourly earnings growing more than twice as fast as inflation, a sustained period of historically low interest rates, falling unemployment and good economic growth, the household savings data adds to a picture of New Zealanders making sensible decisions to strengthen their own balance sheets.
“The Government, which has also kept tight control over its own spending during the same period, has made changes that have encouraged New Zealanders away from debt-funded consumption in favour of a more sustainable and secure position.
“Households have been nudged towards this by a combination of factors including the 2010 tax package which lowered taxes on income and savings and increased tax on consumption and property speculators.
“The Government has also pursued initiatives that have made investments more attractive, including the government share offer programme which helped stimulate New Zealand’s capital markets. At the same time, we’ve tidied up the finance company sector to help protect depositors, and made KiwiSaver more affordable.
“Many low-income households are still finding things tough . However, the overall picture supports a rebalancing of the economy away from the debt-fuelled consumer binge that occurred under the previous Labour government, to a growing culture of saving and investing.
“While this helps households get ahead, low inflation and restrained consumption contributes to government revenue being lower than it otherwise would be, again reinforcing the challenge of getting back to surplus.”Tweet
“These iwi representatives are well-placed to contribute to the work of the group,” says Mr English.
The representatives, nominated by the Iwi Chairs Forum, are Raniera (Sonny) Tau, Naida Glavish, Rahui Papa, Sir Mark Solomon, Dr Hope Tupara, and Richard Steedman.
“We are delighted with the depth, wisdom, and iwi connections that these appointees bring,” says Mr Flavell.
The Whanau Ora Partnership Group is a forum of ministerial and iwi representatives. The group determines the Whanau Ora outcomes that Commissioning Agencies need to achieve and identifies opportunities that the Crown and iwi can contribute to, that support the aims and aspirations of whanau, hapu and iwi, in relation to Whanau Ora.
The Partnership Group consists of equal members of iwi leaders and ministers. The Minister for Whanau Ora Hon Te Ururoa Flavell will chair the group. He will be joined by five other ministers: Finance Minister Bill English, Education Minister Hekia Parata, Health Minister Jonathan Coleman, Social Development Minister Anne Tolley and Economic Development Minister Steven Joyce.
The group will develop strategies that ensure whanau and communities who can benefit from Whanau Ora, have that opportunity. It will hold its first meeting next month.Read full article
New Zealand remains on track for solid economic growth, more jobs and
rising incomes over the next few years, but falling dairy prices and
low inflation will make returning to surplus this year challenging,
Finance Minister Bill English says.
“Businesses and consumers are confident about the future, there’s a lot of activity in the manufacturing and service sectors, and companies are employing more people and paying higher wages,” he said in a speech to an ASB business breakfast in Auckland today.
“New Zealand is performing well in a world that remains uncertain. It was clear from the G20 finance ministers’ meeting in Brisbane last weekend that growth remains elusive in Europe and more uncertainty in China is being reflected in some sharply lower commodity prices.”
The Government’s annual Budget Policy Statement, which will be issued on 16 December along with Treasury’s Half-Year Economic and Fiscal Update, is being compiled in what are unusual times for global economies.
“Falls in global
commodity prices such as oil, forestry and dairy, together with weak
international consumer price inflation, are posing challenges for
governments and central banks around the world,” Mr English said. “New
Zealand is not immune to these global trends.
combination of lower commodity prices and low inflation means that the
nominal or dollar value of New Zealand’s economic output will not grow
as fast as previously expected. This will affect farm and company
incomes and we expect this to flow into the Government’s books through
“On the other hand, the current economic outlook is positive for households. Low global inflation, a strong dollar and more jobs mean we are not seeing the cost of living increases that would usually go with the kind of real economic growth we’re experiencing right now.
“This means New Zealanders have more spending power as, on average, their incomes are rising a bit faster than the cost of living. Low inflation also means there is less pressure on the Reserve Bank to raise interest rates.”
The Government is continuing with its economic plan – through the Business Growth Agenda and other micro-economic reform initiatives – to build a stronger economy that supports more jobs and higher incomes beyond the peak of this economic cycle, Mr English said. This was reflected in a comprehensive growth strategy presented to the G20 summit last weekend.
“We’re also continuing to support the most vulnerable New Zealanders through better public services and support programmes focused on achieving better results.
“And we’re focused on controlling our spending and returning to surplus this year, as well as reducing net debt to below 20 per cent of GDP by 2020, so we can withstand the next downturn or natural disaster.”
The Treasury’s best assessment of the latest data and the impact on government revenue will be included in the Half-Year Update next month.
“The unusual current combination of economic circumstances is likely to have an impact on these updated forecasts,” Mr English said. “As we’ve said all along, returning to surplus this year will be a challenge.
“But we believe the strength of the economy and constrained government spending can deliver a surplus when the final accounts are published late next year.
“The Government has a track record of sticking to our spending plans to protect the most vulnerable and to provide certainty for public services. We won’t be changing that approach.
“The overall trend in the Government’s accounts is positive. The OBEGAL balance has improved from a deficit of 9.2 per cent of GDP in 2011 to a deficit of just over 1 per cent of GDP in 2014, and we’re on track to reduce net debt to below 20 per cent of GDP.”Tweet
The Crown accounts for the first three months of the current
financial year are broadly consistent with forecasts, but at the same
time highlight the challenge of returning to surplus, Finance Minister
Bill English says.
For the three months ended September 30, the operating balance before gains and losses (OBEGAL) deficit was $725 million – $79 million more than forecast in Budget 2014.
Core Crown tax revenue was $73 million (or 0.5 per cent) higher than forecast. Although GST revenue was $175 million (4.1 per cent) below forecast it was offset by corporate tax coming in $135 million (7.1 per cent) higher than expected, and other individuals tax being $79 million (also 7.1 per cent) higher. At the same time, Core Crown expenses were $123 million (0.7 per cent) higher than forecast.
illustrate what I’ve been saying recently,” Mr English says. “The
economy is growing solidly and this is supporting more jobs, allowing
wages to rise faster than inflation and keeping interest rates lower for
“But we have an unusual situation with the nominal economy – which is what drives revenue to the Government - increasing more slowly. This is partly because falling dairy prices are impacting on nominal growth.
“While it’s good for New Zealand families to have low interest rates, low inflation and less debt-driven consumption, it makes the Government’s fiscal position more challenging.
“These accounts reflect only the first three months of the financial year, so uncertainty remains regarding the outlook for tax revenue for the rest of the financial year.
“What is clear is that the Government’s spending remains on track and focused on delivering better results. The fiscal outlook has improved markedly over the past six years and ongoing responsible management is required to ensure the improvements shown in the forecasts actually occur.
“In the meantime, what’s most important to New Zealanders is that we have continuing job growth, moderate wage rises, elevated levels of confidence, a steadily growing economy and a Government that’s committed to carefully managing its own spending,” Mr English says.Tweet
The Government remains committed to its social investment approach to improve services for New Zealanders most in need, Finance Minister Bill English says.
“The Prime Minister has made clear that in this third term the Government will further focus on issues influencing children in material deprivation and hardship. Just as there are many and sometimes inter-related causes of hardship, there must also be multiple and sometimes inter-related strands to the solution.
“The Better Public Services programme, reform of the social housing sector and the investment approach that we have developed to improve services for the people who need them most, are all part of the Government’s ongoing programme.
“In another step, The Treasury will issue a Request for Information inviting submissions from people who work with vulnerable New Zealanders as well as others whose input might help us invest to get better results.”
The Request for Information will focus on:
- Effective ways of identifying and engaging the children and families most at risk of poor education, criminal justice and employment outcomes.
- How existing services or support could be improved to deliver better outcomes for the most at-risk children and their families.
- Issues not currently being addressed that affect at-risk children and their families.
- New interventions, services or arrangements that could deliver better outcomes.
This approach builds on initiatives like Whanau Ora, Children’s Teams and Social Sector Trials, which focus on the needs of individual citizens.
Information collected will be used to identify where existing government services can be improved, or where new localised or citizen-centred services can be trialled as part of Budget 2015. Initiatives could be funded through new spending or reprioritising existing expenditure.
The Request for Information will be available from Thursday on the Treasury website. www.treasury.govt.nz/budget/socialinvestmentTweet