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Govt's capital programme $1.4 billion below expectations in March

Tuesday 30th April 2019

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The government's capital investment programme got even further behind in March, with new purchases of physical assets almost $1.4 billion below Treasury's December forecast. 

The Labour-led coalition has made upgrading ageing infrastructure a key plank to its policy platform, planning a $42 billion spend over five years to restore assets that have been left to wither over successive years. The Treasury's December forecasts anticipated a cash spend of $10.67 billion in the year ending June 30, up from $7.67 billion in the 2018 financial year. 

However, after nine months of the current financial year, the Crown has spent a net $6.26 billion buying physical assets, tracking $1.35 billion behind expectations. In the eight months through February, that shortfall had been $879 million. 

The accounts show the Crown's total carrying value of property, plant and equipment at $161.856 billion as at March 31, with additions tracking $1.51 billion behind forecast at $6.75 billion. It had disposed of $434 million of those assets, more than the $269 million forecast in December. 

The Crown's capital programme has been spearheaded by the Kiwibuild housing policy, which has fallen short of its initial targets. The $3 billion Provincial Growth Fund has backed a raft of projects, but most are still in their very early stages. 

The government has been under pressure to loosen its purse-strings and ditch self-imposed fiscal discipline to provide a fiscal injection to the economy through an even greater infrastructure spend.

However, the unemployment rate was 4.3 percent in December and employers have struggled to attract and retain staff in the current environment, putting a limit on what work can actually be achieved. Business surveys also show declining expectations among firms of their ability to increase their capacity utilisation.

Today's accounts are the last before Finance Minister Grant Robertson unveils his well-being budget on May 30. They show the operating balance before gains and losses to be in surplus by $2.52 billion for the nine months ended March 31. That's $329 million more than forecast. 

The Crown's tax take rose 5.1 percent to $60.37 billion from a year earlier, although that was $542 million below expectations due largely to the timing of GST refunds and lower corporate provisional tax estimates. 

Core expenses rose 7.6 percent to $63.55 billion, some $583 million below forecast, with predicted education spending not occurring, a smaller welfare bill, and fewer impaired receivables. 

"The well-being budget in May will outline the next steps in the government’s plan to grow and support the economy, particularly given the international situation," Robertson said. 

The Crown's residual cash deficit of $2.63 billion was $502 million below forecast but in line with expectations, Treasury officials said. 

Net debt of $60.51 billion, or 20.6 percent of GDP, was $855 million below forecast. The Crown's finance costs of $3.08 billion were $20 million below forecast, and down from $3.15 billion a year earlier. 

Low global interest rates are among the reasons some commentators are urging a bigger infrastructure programme. At its last bond tender, the New Zealand Debt Management Office sold $150 million of 2037 notes paying annual interest of 2.75 percent at an average yield of 2.34 percent. In January, the same notes were sold at an average yield of 2.7 percent. 


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