English ekes out surprise surplus as growth stokes tax-take, keeps one eye on debt
By Paul McBeth
Oct. 14 (BusinessDesk) - Finance Minister Bill English has delivered a surprise surplus, ending six years of red ink, as the economy maintained enough momentum to lift the government's tax-take, while keeping a lid on spending increases.
The operating balance before gains and losses (obegal) was a surplus of $414 million in the 12 months ended June 30, better than the deficit of $684 million predicted in the May budget, and turning around a shortfall of $2.8 billion a year earlier. Core tax revenue climbed 8.2 percent to $66.64 billion, almost $600 million more than predicted five months ago, and outpacing a 1.7 percent increase in core Crown expenses to $72.36 billion, some $500 million less than expected.
"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," English said in a statement. "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."
The Crown's accounts started showing signs of improvement in the lead-up to today's release, showing surprise obegal surpluses in the 10 and 11 month periods as unexpected inflows from company and Portfolio Investment Entity taxes, which were expected to persist through until the June 30 balance date. A deteriorating outlook prompted the Treasury to lower its forecasts further in the May 21 budget, projecting an obegal deficit of $684 million in the 2015 financial year, with the 2016 surplus whittled back to $176 million.
An expanding labour market and rising employment added $1.6 billion to the government's coffers through higher income tax in the year, while goods and services tax rose $1.2 billion in the year, and Treasury expects that growth to persist in the 2016 financial year. Company tax climbed $1 billion through increased profits, though the Treasury anticipates provisional tax estimates will reverse.
English said the global environment where interest rates are expected to be lower for longer due to soft inflation means tax revenue will probably be lower than previously forecast, and supported his focus in tasking the public service to reduce long-term drivers of government spending.
Core Crown expenditure was below the budget forecast with earthquake spending progressing at a slower pace than expected, less spent on Treaty of Waitangi settlements, lower Ministry of Education expenses, and fewer debt write offs and benefit costs at the Ministry of Social Development. A $700 million increase in the cost of superannuation was the biggest increase from a year earlier.
English said the government's focus needs to be "on steady and ongoing reductions in public debt over the medium term" in what is still an "uncertain global environment."
Net debt, the government's preferred measure, was $60.63 billion, or 25.2 percent of gross domestic product, as at June 30, below the $61.67 billion forecast in May. Gross debt at $86.13 billion, or 35.8 percent, was above the forecast $83.91 billion, or 35 percent of GDP.
Finance costs for the Crown rose 3.7 percent to $4.56 billion in the year, below the expected cost of $4.69 billion.
The Crown's residual cash deficit was $1.83 billion, smaller than the $2.67 billion shortfall predicted, and down from $4.11 billion a year earlier as increased tax receipts offset some of the cost of the government's capital spending programme.
The operating balance, which includes unrealised movements in the Crown's investment portfolios, was a surplus of $5.77 billion, compared to a predicted deficit of $634 million in the May budget, and more than the surplus of $2.94 billion in 2014.