Larger surplus

A larger than forecast surplus has been announced by the Government.

This will help National with their budget in a couple of months, and shouldn’t do their election chances any harm, but do they usually announce 7 month results? Or are they just want to get a bit of good news out there?


BREAKING: Seven month surplus better than expected

Even the Government misuses ‘Breaking’.

The Government’s books are better than expected, with a $1.1 billion OBEGAL surplus for the seven months to January, Finance Minister Steven Joyce says.

“Stronger tax revenues as a result of a healthier economy are flowing through to the Government’s financial performance,” Mr Joyce says.

Tax revenues year-to-date are 3.8 per cent more than they were predicted to be in Budget 2016.

“Company tax in particular is higher than expected, and that reflects the good performance of New Zealand companies in what is still an uncertain world,” Mr Joyce says.

The $1.1 billion OBEGAL surplus compares to Treasury’s forecast of a $517 million surplus at the start of the fiscal year.

Core Crown expenses for the seven months to January were $234 million lower than the Budget forecast, reflecting the Government’s ongoing commitment to prudent spending.

Mr Joyce says that a number of variables made the final out-turn for the full financial year hard to predict.

“The biggest variable at this stage is the cost of the Kaikoura earthquake and how those are allocated between this year and next year,” Mr Joyce says.

“The good news is that this Government’s strong economic management means we can afford to step in to help these communities and support them when they are most in need.”

 

Tax ‘cuts’ essential

Now that a sizeable cash surplus has been announced there has been a lot of conjecture about what should be done with this surplus and potentially future surpluses.

There have been calls for more spending on the police, on education, on health, and on the poor. Probably about ten times as much expenditure as surplus, but opposition parties can get away with that.

One very contentious issue is whether there should be tax cuts or not. National have been saying they would like to cut taxes further for years.

I think at least modest tax cuts are essential – not actually cuts, but reinstating tax rates that have gradually slipped away through bracket slippage.

One reason why Helen Clark’s government (with Michael Cullen as Finance Minister) ended up getting rejected by voters was due to growing annoyance that effective tax rates had gradually increased during buoyant a financial time period. We were gradually taxed more, and Cullen was too late to react.

National have been constrained by deficits, until now.

They should at least change income tax brackets to adjust for wage inflation, so we are at least back to where we were in 2009.

Tax brackets should be indexed to wage inflation and adjusted regularly, otherwise they will continue to be used as tax increases by stealth.

No surplus?

Stephanie Rodgers claims that the surplus announced yesterday is not actually a surplus – because, she says, the Government should have spent more so there wouldn’t be a surplus.

There is no surplus

In Year Eight of this National government, the idea of a budget surplus is a joke (and not just because it’s been completely engineered by the catastrophic Auckland housing bubble). They’ve promised it for nearly a decade. They’ve fiddled the books to make the numbers come out OK. They even declared a surplus in the middle of the financial year – that’s how desperate Bill English has been to pretend that everything’s going along just fine in New Zealand.

That shows an alarming lack of understanding of how how a Government budget works, and why the surplus was announced now.

“Finance Minister Bill English has today presented the Crown accounts for the year to June”.

It’s normal to announce financial results a while after the end of the financial year, like about now.

The Government is required to announce crown accounts, even when the timing isn’t too Rodgers’ liking.

The truth is, there is no surplus.

This surplus isn’t a success for our government. It is a sign of their failure. It shows they do not understand what their job is: to look after the people of this country. To govern us – not bean-count.

There is no surplus – not if you care about people more than money.

So Rodgers doesn’t want a surplus because she wants more money spent, probably a lot more money than Crown revenue, which means a deficit. She would probably complain if a deficit was announced at this time of year too.

$1.8b surplus announced

The Crown accounts for the year to June were presented yesterday, with the big news being a bigger than expected surplus.

Media release:


Government surplus increases to $1.8 billion

Finance Minister Bill English has today presented the Crown accounts for the year to June, showing a surplus of $1.8 billion in 2015/16, up from $414 million in 2014/15.

The Crown accounts show core Crown expenses are under 30 per cent of GDP for the first time since 2006, net debt has stabilised to 24.6 per cent of GDP and net worth has grown to $89.4 billion in 2015/16.

Mr English says the $1.8 billion operating balance before gains and losses (OBEGAL) in 2015/16 – which compared to a forecast of $176 million in Budget 2015 – is a significant turnaround on the $18.4 billion deficit in 2011 following the Global Financial Crisis and Canterbury earthquakes.

“Government surpluses are rising and debt is falling as a percentage of GDP which puts us in a position to be able to make some real choices for New Zealanders,” Mr English says.

“The New Zealand economy has made significant progress over the past eight years. This delivers more jobs and higher incomes for New Zealanders, and also drives a greater tax take to help the Government’s books.”

Core Crown tax revenue was $1.6 billion higher than forecast in Budget 2015.

“We’ve also been getting on top of our spending, exercising fiscal restraint while still investing responsibly in our growing economy and public services.

Core Crown expenses were $73.9 billion in 2015/16, below the forecast of $74.5 billion at the beginning of the year.

“We’ve focussed on results and are starting to address the drivers of dysfunction by investing in better public services. We remain committed to maintaining rising operating surpluses and reducing net debt to around 20 per cent of GDP in 2020.

“If there is any further fiscal headroom, we may have the opportunity to reduce debt faster and as we’ve always said, if economic and fiscal conditions allow, we will begin to reduce income taxes.

“The outlook for the economy is positive, the Government’s books are in good shape and we are addressing our toughest social problems. However, we also need to bear in mind that there are a lot of risks globally and that is why it is important to get our debt levels down.

“Budget 2017 will make positive long-term choices to strengthen the economy and our communities.”

11 month Government surplus

The ODT reports a better than forecast Government surplus in  in Surplus to requirements:

The Government accounts are in surplus by more than $2.3billion for the 11 months ended May…

The last time the Crown accounts recorded a larger year-to-date obegal surplus than the May 2016 surplus of $2.3billion was the June 2008 annual financial statements, when the year-to-date surplus was $5.6billion.

This should be something to celebrate.

The financial accounts, released by the Treasury, showed core Crown tax revenue was $64.7billion, 0.6%, or $364million higher than forecast, largely due to customs and excise duties ($188million), source deductions ($182million) and GST ($98million). The variances were a mix of timing and permanent in nature.

Core Crown expenses of $67.2billion were close to forecast.

And in what has become a familiar theme, the operating balance, which includes all the losses and gains, was in a deficit of $1.5billion, $82million larger than forecast.

The operating balance was again hit by ACC actuarial losses, this time of $880million. The Emissions Trading Scheme liability increased due to an increase in carbon prices, resulting in losses of $520billion. But the losses were partly offset by favourable movements in Crown investments of $1billion.

But the ODT says that no one cared, or at least politicians didn’t seem to care:

However, Finance Minister Bill English did not bother to put out a statement congratulating himself or saying how the Government’s fiscal prudence was paying dividends. Nor did he comment on how the accounts were subject to seasonal influences and there was no guarantee a surplus would be achieved next month.

There should have been something from Mr English, especially around whether debt repayment, more infrastructure spending or tax cuts were on the agenda.

Neither the Green, Labour nor New Zealand First parties bothered to put out a statement criticising the Government for racking up a surplus…

The end of year result should receive more attention, from the Government if it’s good news and from Labour and the greens if it’s negative.

Tax revenue $1.1b under forecast

Stuff reports that Government’s surplus nearly $1b less than forecast at Budget 2016 due to core Crown tax revenue being $1.1 billion lower than forecast in the 10 months to April.

The Government’s financial statements, released on Friday, showed the operating balance before gains and losses (Obegal) was $297 million in the black for the 10 months to April. 

Finance Minister Bill English said it highlighted the monthly volatility in the Crown accounts. 

The surplus was $941m smaller than forecast in Budget 2016, largely as a result of core Crown tax revenue coming in $1.1 billion lower than forecast.

English said the lower-than-expected tax revenue was mostly driven by corporate tax being $1.4 billion below forecast.

“Treasury consider that most – if not all – of this variance will reverse out by June 30.

This shows that balancing the Government books (and forecasting accurately) is an ongoing challenge.

Further forecasts are for growth but a flattening out of the economy must cause some concern.

At the same time in possibly related news the ODT reports Economic activity static in quarter.

The national economy stood still in the three months ended March, the ANZ Regional Trends index failing to lift for the first time in five years.

ANZ economic statistician Kylie Uerata said the pause needed to be put into context.

Regional-based growth estimates were “incredibly strong” late last year.

“Pausing for breath after strength is not unusual.”

This chart of budget surpluses and deficits over the past 10 years from Trading Economics shows that New Zealand has barely recovered from the Global Financial Crisis that hit hard after New Zealand was already moving into recession in 2008 plus the substantial cost of the Christchurch earthquakes.

TradingEconomicsNZBudgetSurpluses

Stuff charts a longer period of 20 years of surpluses and deficits plus 5 years of forecasts.

BudgetSurplusdDeficitStuff

So after only just getting back to a meagre surplus it has flattened out, the forecast for next year is flat, and then someone hopes that the economy will recover and grow from there.

However what has to be considered is the possible effect of an election year budget where a thirds term Government may be tempted to splurge a bit on spending (vote buying).

Also what should be considered is the possibility and the possible effects of a change to a Labour-Green government next year, or to a Labour-Green-NZ First government, or to a National-NZ First government.

It is normal for larger minor parties to push for spending on their pet policies in reward for enabling a large party to form a coalition.

This could be exacerbated if a weakening Labour is joined by Greens and/or NZ First who are growing in relative strength.

Perhaps it’s time to seriously consider what influence NZ First would have on Government spending.

Would they assist with economic prudence or would they demand increased spending?

The two hands of Robertson’s surplus response

Today’s Herald editorial – Use surplus for benefit of everyone – highlights a contradiction in the opposition response to the National Government finally, after seven years, achieving an actual surplus.

Across the aisle, opposition parties waved their wish-lists with new confidence, calling for the surplus to be spent on child poverty, more hospital operations, more pre-school education … you name it.

At the same time, they predicted the slender surplus would disappear as suddenly as it arrived.

Labour have long criticised National for following their surplus years under Helen Clark and Michael Cullen with a sequence of deficits.

Even now they lambast National because they say the surplus will be short lived due to tightening economic conditions and low inflation.

But Labour have opposed many measures aimed at keeping a tight rein on spending.

They have pushed for more spending.

As soon as the surplus was announced Labour MPs suggested how it could be spent many times over.

On one hand Labour’s finance spokesperson Grant Robertson was highly critical of the meagre surplus:

First surplus a blip on radar screen of debt

by  on October 14, 2015

Bill English’s first surplus is just one black drop in a sea of red, with New Zealanders still paying over $10m a day in interest payments, Labour’s Finance spokesperson Grant Robertson says.

“The Finance Minister has finally found a surplus needle in his haystack of debt. Despite promising a ‘significant’ surplus, it’s just $414m. That’s less than 0.2 per cent of GDP – a rounding error, not a surplus.

“But the surplus show is over before it has begun. With the economy running out of steam, National’s promises of a string of surpluses are extremely unlikely to become reality. That’s poor financial management.

“National’s financial management will go down in history as one small surplus – at the peak of the economic cycle – out of nine Budget deficits.

And on the other hand, on the same day, he issued this complaint about the lack of spending required to achieve the surplus:

Nats sacrifice Kiwis’ health and education for surplus

by  on October 14, 2015

National’s drive for surplus has meant less investment in critical areas like health, education, housing and transport – yet John Key told Parliament today he wants the money for cycleways, Labour’s Finance spokesperson Grant Robertson says.

“The Government’s belated surplus has been partly achieved by dropping spending by $235m in education, $97m on housing and community development, $52m in health and over $300m on transport and communications.

“These are critical areas. Too many students are failing NCEA, dilapidated state houses are making people sick, patients are waiting far too long in hospital emergency departments and regional roads and internet services are in desperate need of upgrades.

“It also appears that $444m has been taken out of the EQC claims budget. No one in Canterbury waiting for repairs or needing their repairs redone would think that money isn’t needed.

“The next time Kiwis find themselves waiting for an operation, getting sick in their home, worrying about their children’s performance at school, or nearly crashing on a dodgy road they can thank their lucky stars Bill English has a surplus and John Key has his cycleways,” Grant Robertson says.

This is Opposition opposing gone mad – criticising National for finally, only just achieving a surplus but hammering them for not spending more. For not spending a lot more.

On one hand he criticises years of deficits, but he wants to hand out heaps more money with his other.

The Herald wrote:

If the surplus in the final account for the year that ended on June 30 can be sustained in the current year and projected to continue, the best use of it would be to reduce debt more quickly. The next best use would be to resume the contributions to the NZ Super Fund that the Government suspended six years ago.

The level of debt and stopping contributions to the Super Fund have also been criticised by Labour.

If Robertson ever becomes Minister of Finance it will be interesting to see how he goes about balancing the books.

A surplus, just

The Government have got their surplus, just. Bill English may be more relieved than happy, and prudence will need to continue with financial conditions being a bit iffy.

GOVERNMENT POSTS FULL YEAR OPERATING SURPLUS

By Hon Bill English

The Government has reported an operating surplus in the fiscal year that ended on 30 June, meeting a target set in 2011 following the Canterbury earthquakes and the international financial crisis, says Finance Minister Bill English.

The OBEGAL surplus of $414 million in the year to 30 June 2015 is equal to 0.2 per cent of GDP and the Government’s operating balance inclusive of gains and losses was a surplus of $5.8 billion or equal to 2.4 percent of GDP.

While core Crown expenses grew by $1.2 billion (1.7 per cent), the increase in spending was lower than the pace of growth in the economy, resulting in expenses easing to 30.1 per cent of GDP, compared with over 34 per cent of GDP four years ago.

“Returning to surplus in 2014/15 is a significant milestone. I’m proud of the steps taken across the wider public service to help deliver the surplus target while also improving the quality of social services delivered to New Zealanders,”  Mr English says.

“The Government is committed to continued prudent management of the public finances, including ongoing attention to operating spending and the underlying drivers of demand for public services. The Government supports reprioritisation of spending that is not delivering results and rigorous management of the Crown balance sheet.

“Our focus must remain on steady and ongoing reductions in public debt over the medium term. That is the most prudent approach to take in a still uncertain global environment,” Mr English says.

“The economy is growing. It recently registered its 18th consecutive quarter of expansion to deliver annual growth of 2.4 per cent in June 2015.

“The Government’s programme to build a more productive economy is delivering dividends in the form of higher living standards and better quality essential services. And it is also delivering returns in terms of the health of the Crown’s finances.

“What today’s figures from Treasury indicate is the Crown’s overall finances have been radically turned around in the years since they had to absorb cumulative shocks outside of the control of any government,” Mr English says.

In the wake of those shocks, the Crown’s annual operating balance excluding gains and losses (OBEGAL) was a deficit of $18.4 billion – that’s equivalent to around nine per cent of national income or GDP in that year.

“It has required very careful stewardship over day-to-day expenses to permit the Government to chip away at the size of the OBEGAL deficits year after year and, in 2014/15, to return to surplus and deliver on the target first set in 2011,” Mr English says.

“Our focus must remain on steady and ongoing reductions in public debt over the medium term. That is the most prudent approach to take in a still uncertain global environment,” Mr English says.

Having criticised National for running deficits for siz years Labour have switched to criticising them for not spending more (which would keep us in deficit).

Nats sacrifice Kiwis’ health and education for surplus

by Grant Robertson on October 14, 2015

National’s drive for surplus has meant less investment in critical areas like health, education, housing and transport – yet John Key told Parliament today he wants the money for cycleways, Labour’s Finance spokesperson Grant Robertson says.

“The Government’s belated surplus has been partly achieved by dropping spending by $235m in education, $97m on housing and community development, $52m in health and over $300m on transport and communications.

“These are critical areas. Too many students are failing NCEA, dilapidated state houses are making people sick, patients are waiting far too long in hospital emergency departments and regional roads and internet services are in desperate need of upgrades.

“It also appears that $444m has been taken out of the EQC claims budget. No one in Canterbury waiting for repairs or needing their repairs redone would think that money isn’t needed.

“Bill English says this is the Government saving money but the truth is he is trying to cover his Budget blushes and belatedly scrape together a surplus.

“Incredibly now the Government is in surplus John Key doesn’t want to fix these critical areas – he wants to spend the money on more cycleways.

“The next time Kiwis find themselves waiting for an operation, getting sick in their home, worrying about their children’s performance at school, or nearly crashing on a dodgy road they can thank their lucky stars Bill English has a surplus and John Key has his cycleways,” Grant Robertson says.

I await Robertson’s plan for spending more, resuming contributions to the Super fund, and reducing Government debt.

More than a Little over the top

Andrew Little was more than a little over the top claiming National’s ‘promise’ to return to surplus by this year was “one of the biggest political deceptions in a lifetime”. Especially considering what Labour said in the same campaign.

In his pre-budget speech today Little said:

That promise, “to return to surplus in 2014/15” sat proudly as their number one commitment in their election material, distributed to every corner of New Zealand.

But their promise was clear. Their good economic stewardship would see us in surplus.

And now they’ve abandoned their promise.

National’s talk now is about how achieving surplus was an “artificial target” and that getting a surplus is “like landing a 747 on the head of a pin.”

A lot of effort has gone into glossing over the broken promise. But I see it for what it is – one of the biggest political deceptions in a lifetime.

It was election rhetoric that has come back to haunt National a bit. They said it, they have to cop flak for not achieving what they claimed they could do. Finance can be fickle. They should have qualified their claims more carefully.

But the gross overstatement from Little is hardly any better. Especially considering Labour’s own campaign rhetoric, like:

Everything is paid for plus we’re in surplus

Labour’s Alternative Budget

As Kiwis we all want to be able to raise a healthy and happy family, have a well-paid and secure job and the chance to buy our own home. To give every Kiwi those opportunities, we need to grow a strong economy. That means we need solid and stable economic management.

Labour will balance the budget and run surpluses every year. We’ll reduce net debt faster than the current government and pay off National’s record debt by the end of our second term. All of our policies are carefully costed and funded. 

No more carefully costed and funded than National.

Little’s statement that National’s election claim was “one of the biggest political deceptions in a lifetime” may not be one of the biggest political overstatements in a lifetime, but it’s more than a little over the top.

Labour source: http://campaign.labour.org.nz/everything_is_paid_for_plus_we_re_in_surplus

English signals missed surplus target

Bill English has clearly signalled he will announce another deficit budget this month.It’s likely to be a small deficit relative to the size of the budget, but red ink is red ink.

On The Nation yesterday:

Well, okay, it would be nice if the number got there this year; it’ll just take a bit longer.

We’ll soon be in a position to start paying off debt. Our expenditure’s under control; the revenue’s a bit harder.

We think that it’s really important we get to surplus…it’s going to take a bit longer.

In the whole scheme of financial management over seven budgets this won’t be a big deal.

Except that English and National have promoted and campaigned on reaching surplus by now so conceding this target is a bit of an embarrassment to them. English will take this on the chin, outwardly at least, but he will be frustrated. At least he should be.

The financial crisis followed by the Christchurch earthquake made it a very challenging two terms for National and despite clocking up some huge loans they have managed things fairly well, and compared to many other countries (notably Australia) it’s been well managed.

Minister, you used the analogy of weight loss, but let me use another one, the All Blacks. They set a goal to win the World Cup; they don’t. That’s a failure, and they call it that. You set a target for a surplus, and you haven’t met it. That’s a failure, isn’t it?
Well, for a lot of people, the surplus is less important than the World Cup. But the thing about the World Cup is—
But it’s your target, Minister. Minister, you set the target. It’s your target, and you didn’t get there. Isn’t that a failure?
With the World Cup, there is a final, and you’re absolutely judged on the final. With a surplus, it can take a bit longer and you still get there. You don’t get another go at the World Cup.

It is a failure to achieve what English has promoted and what National campaigned on last year. It’s not a broken promise. It’s pragmatic. But it’s a failure to achieve a target.

You’ve set yourself a time limit, and we were supposed to be in surplus and you’re not going to get there. Can you not concede that that is a failure?
No, I don’t call it a failure. It is what it is, and that is for the 14/15 year, we budgeted $370 million surplus. It looks like it will be a $500 or $600 million deficit, and the surplus will be the next year. So we’re on track.

But if English and National can’t get to surplus by next year’s budget the pressure will pile on them. They could be judged at the 2017 election by extended failure to achieve a surplus.