The New Zealand government’s operating surplus beat expectations as the Crown’s tax take was bolstered rising company profits, a bigger working population and increased investment gains.
The operating balance before gains and losses (obegal) widened to $5.53 billion in the 12 months ended June from $4.07 billion a year earlier, beating Treasury’s forecast in May for a surplus of $3.14 billion. The government’s tax take rose 6.1 percent to $80.22 billion, outpacing the projected $79.54 billion, while core operating costs lagged behind expectations at $80.58 billion, a more modest increase of 5.6 percent. The spending line will likely catch up in coming years, with timing issues accounting for about half the lower expenditure.
The Crown’s coffers were bolstered by a 3 percent increase in annual wages and a 3.7 percent expansion in the labour force supporting a 7.3 percent increase in income tax to $36 billion, and a 6.7 percent gain in goods and services tax to $20.81 billion. Company taxes rose 6.2 percent, or $800 million, to $13.5 billion, of which an extra $200 million came from portfolio investment entities, vehicles used for savings and investments.
“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,” Finance Minister Grant Robertson said. “This means Budget 2018 spending and investment plans are on track.”
The Treasury was relatively optimistic about the remainder of 2018, this month saying it expects steady growth to continue for the rest of the year due to the Families Package support for low-income families, high net migration and a modest recovery in the housing market. Economists are more circumspect as the latest business confidence and activity surveys indicate slower GDP growth.
Robertson said the international environment is weighing on his outlook for the economy. When asked whether he’s leaning to the Treasury’s upside, downside or core forecast for the Budget, he said the risks were either neutral or to the downside.
“I’m looking forward to a good quarter in September and if that happens then we’ll be on or about on track,” he said. “I’m keeping a wary eye on the international environment particularly.”
The Crown accounts show the government’s level of indebtedness shrank in the year, with net debt at $57.5 billion, or 19.9 percent of GDP, compared to $59.48 billion, or 21.7 percent of GDP a year earlier. That was helped by an unexpected residual cash surplus of $1.35 billion against an expected deficit of $1.26 billion.
Robertson reiterated his commitment to keeping debt in check, saying it provides enough of buffer to invest in critical infrastructure.
Capital spending of $5.9 billion in the June 2018 year included $2.5 billion of physical assets such as school buildings, defence equipment and hospitals, $2.8 billion of investments in state highways, KiwiRail and the City Rail Link, and $500 million of contributions to the New Zealand Superannuation Fund. Capital commitments totalled $10.98 billion as at June 30, of which $4.41 billion is in state highways.
The Crown’s net worth was $135.64 billion as at June 30, up from $116.47 billion a year earlier, and more than the $123.57 billion forecast. The biggest increases in asset values were in the state highway network and housing portfolio.
The government’s operating balance, including investment gains from NZ Super and Accident Compensation Corp, was $8.4 billion, narrowing from $12.32 billion a year earlier, but still ahead of forecast. Investment gains of $5.3 billion were offset by actuarial losses of $2.4 billion.