Wellington, October 9, 2018
A strong surplus and falling net debt reflect a growing economy and show the Coalition Government is managing the books responsibly, Finance Minister Grant Robertson has said.
The Crown financial statements for the year to June 30, 2018 are the first official check in on the Government’s commitment to run surpluses, pay down net debt and keep expenses under control.
Mr Robertson issued the following Statement:
It is important that we run surpluses and pay down debt to make sure we are in a good position to deal with any rainy day.
Spending and Investment
Economists have been warning about growing risks in the international economy, particularly due to rising trade protectionism, which we need to be well-placed to face in case this flows through to the New Zealand economy.
The headline results today are ahead of the Treasury’s forecasts in Budget 2018.
This was largely due to timing issues with Crown expenses, which will reverse out as that planned spending occurs early in the 2018/19 year.
This means Budget 2018 spending and investment plans are on track.
The books show that we are meeting the Budget Responsibility Rules. A headline $5.5 billion surplus operating balance before gains and losses (OBEGAL) is $2.4 billion above the Treasury’s Budget 2018 forecast.
A number of factors contributed to this result being ahead of Budget 2018 expectations. A number of one-offs led to core Crown expenses coming in 1.4 percent below forecast at June 30, 2018. The Treasury says that this was largely due to timing issues, meaning much of this variance is set to reverse out in the 2018/19 accounts. Core Crown expenses were stable at 27.9% of GDP.
A strong economy contributed to core Crown tax revenue coming in 0.9 percent higher than expected in the year to June 30, 2018. Corporate tax revenue was up, due to profits for both large and small businesses being higher than the Treasury had forecast at Budget 2018. This result indicates the strength of the growing economy.
This underlying strength of New Zealand businesses saw the number of people in employment rise by 3.7% over the year, while average wages rose 3%. These numbers show that our economic fundamentals are strong.
The financial statements also indicate the Coalition Government’s commitment to making the important infrastructure investments New Zealand needs to unlock the growth potential of our cities and regions. At the same time, we are making up for neglected investment in critical public services in recent years.
Net capital investment of $5.9 billion in the year was the highest since 2009 and an increase of $2.2 billion from the previous year. This included investments in hospitals, schools and state highways, while also reflecting the Coalition Government’s move to resume contributions to the NZ Super Fund.
We are committed to a balanced approach by adopting a responsible debt reduction track. At 30 June 2018, net core Crown debt was 19.9 percent of GDP, compared to the 20.8 percent forecast in Budget 2018.
We remain committed to the Budget Responsibility Rule that net debt will be 20 percent of GDP in 2021/22. This gives us the space required to make the critical infrastructure investments that New Zealand needs, while still building a buffer.