8 Oct 2019

Govt surplus increases to $7.5 billion

6:06 pm on 8 October 2019

A tax windfall and one-off accounting gains have delivered the biggest budget surplus in a decade - more than double forecasts.

Finance Minister Grant Robertson

Finance Minister Grant Robertson Photo: RNZ /Dom Thomas

The surplus for the year ended June was $7.5 billion, up $2b on the previous year, and a May budget forecast of $3.5b.

The tax take was more than $6b above expectations at $86.5b, with increases in company, goods and services, and income tax driven by population growth and more people being in work.

"The surplus and low levels of debt show the economy is in good shape. This allows the government to spend more on infrastructure and make record investments in health and education," Finance Minister Grant Robertson said.

Government spending was up about $6.5b, which was due to large pay settlements in the health sector, settling historic holiday pay claims, and increased support for low income families.

However, the surplus was also boosted by a change to the valuation of the rail network, which gave a one-off gain of $2.6b.

Net debt was better than expected at 19.2 percent of GDP, below the government's self-imposed target.

The government's broader financial position, including the performance of crown entities such as ACC and the Superannuation Fund, was a deficit of $2.3b which reflected the impact of the steep fall in interest rates.

Delivering surpluses, the level of government spending and net debt targets are among the Budget Responsibility Rules the Labour Party set for itself before last year's general election.

Treasury chief executive Dr Caralee McLiesh.

Treasury chief executive Dr Caralee McLiesh. Photo: RNZ / Dom Thomas

Mr Robertson said the accounts showed economic fundamentals were strong and the country was outperforming much larger developed economies.

"It is important that we don't talk ourselves into a downturn just because it suits some people's negative narrative... The economy (has) a solid platform to keep growing and face any global headwinds."

Recent surveys have put business confidence at its lowest level in a decade.

The Reserve Bank has cut interest rates to a record low 1 percent to give the economy a shot in the arm, but has given broad hints that it would like to see more spending by the government to lift activity and demand.

Mr Robertson said the government has already increased social spending and is committed to capital spending.

"Fiscal policy has a part to play alongside monetary policy as we manage these challenging global economic conditions.

"I'm not seeing any evidence New Zealand is moving to a recession," he said.

Mr Robertson refused to be drawn on whether tax cuts might be on the agenda next year, but said the government was not doing any work on a suggestion by the International Monetary Fund that a cut in the GST rate would offer stimulus.

He said the government is in a position to make "record investments in health and education".

He said it was already underway following a $10 billion infrastructure spend in last year's Budget.

The areas they were focusing on include schools, hospitals and transport networks.

The May budget for the current year has forecast a surplus of $1.3b.

BNZ senior economist Craig Ebert said the one-off accounting gains, which boosted the bottom line, probably flattered the final numbers, although he said there was no disputing the strength of government finances and the position it put it in to face headwinds.

"It's certainly a very strong starting point particularly if you look at the international context."

However, Mr Ebert said the issue was whether the strength of the tax take and economic growth would match Treasury's optimistic forecasts in the last budget.

The budget was forecasting growth approaching 3 percent a year but most economists doubt it will get much above 2 percent.

Mr Ebert said the books showed the government's social and infrastructure spending early in its term was flowing through, but the question was whether it could be maintained.

"It may be difficult to keep expanding government spending at that rate .. so in that sense it's difficult to ask much more from government spending."

National accuses government of 'sitting on cash'

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Todd McClay Photo: RNZ / Alexander Robertson

The National Party has spent the past two years attacking the government over slumping business confidence - it's now doubled down, saying the Finance Minister is sitting on a stack of money instead of spending it on taxpayers.

National's economic development spokesman Todd McClay said it's simply inaccurate to suggest roads and rail were being built and health was being invested in.

He said any economic troubles globally were completely separate from the pessimism being seen across the country.

"Certainly there are international headwinds but we see from the falling GDP numbers and plummeting business confidence that actually there is pessimism in the New Zealand economy long before anything internationally starts to hit us.

"Grant Robertson actually should be looking at what they're spending money on. New Zealand needs roads and infrastructure and a lot more support in health,'' Mr McClay said.

"It's not good enough for him to be sitting on the cash in the Beehive.''

Mr McClay said one of the most shocking revelations from today's financial outlook was district health board deficits climbing from $700 million to $1 billion.

"It's the highest deficit DHBs have ever faced, it ultimately means Kiwis are not getting their operations. That's frankly just not good enough.''

The release of the financial statements today marked the first public appearance by the new Treasury secretary Caralee McLiesh.

Her appointment comes after the ungraceful finish to Gabriel Mahklouf's tenure after he was investigated for describing a simple search of the Treasury website by the National Party ahead of Budget day, as a systematic and deliberate hack.

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