Thursday 13th October 2016
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Finance Minister Bill English today announced a bigger surplus than expected in the last fiscal year as a growing economy underpinned by an expanding population delivered a bigger tax take than anticipated.
The operating balance before gains and losses (obegal) was a surplus of $1.83 billion in the 12 months ended June 30, rising from $414 million a year earlier, and ahead of the budgeted $668 million surplus. Core tax revenue climbed 5.7 percent to $70.45 billion, beating the forecast $69.68 billion and outpacing a 2.2 percent rise in core Crown expenses to a smaller-than-expected $73.93 billion.
"The New Zealand economy has made significant progress over the past eight years," English said in a statement. "This delivers more jobs and higher incomes for New Zealanders and also drives a greater tax take to help the government's books."
The country's economy has been growing at a faster pace than expected as record levels of inbound net migration and tourism stoke consumer demand. That expanding population has boosted the size of the labour market, filling an increasing number of jobs and keeping wage inflation muted.
Personal income tax rose 5 percent to $31.57 billion, with nominal wages rising and more people working. That fed into a 6.1 percent gain in goods and services tax to $18.21 billion. Company tax was up 7.4 percent to $11.05 billion on rising business profits.
The bigger tax take reduced the size of the Crown's cash deficit to $1.32 billion from $1.83 billion in 2015, and combined with a smaller bond issuance than expected, kept it below the forecast deficit of $2.12 billion. Net debt was $61.88 billion, or 24.6 percent of gross domestic product, as at June 30, compared to $60.63 billion, or 25.1 percent of GDP, in 2015. Finance costs fell 5 percent to $4.34 billion, less than the $4.47 billion budgeted for.
English reaffirmed his goal of getting net debt to about 20 percent of GDP in 2020, and if there's an unexpected windfall, "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 Crown's net worth was $95.52 billion, or 35.5 percent of GDP, as at June 30, compared to $92.24 billion, or 35.8 percent of GDP, in 2015, and ahead of the $89.3 billion, or 33.4 percent of GDP, projected in the May budget. Some $2.7 billion of that increase in value was attributed to the Crown's housing stock, largely because of the strength of Auckland's property market.
The operating balance, which includes unrealised movements in the Crown's investment portfolio and actuarial valuations of long-term liabilities, was a deficit of $5.37 billion, turning from a surplus of $5.77 billion in 2015, and bigger than the $2.57 billion shortfall projected. The turnaround was largely due to a $5.1 billion actuarial loss on the value of Accident Compensation Corp's long-term liability due to a decline interest rates reducing future investment income to meet those costs.
The biggest increase in the Crown's core expenses was a 5.8 percent rise in New Zealand superannuation payments to $12.28 billion as recipients roes to 690,600 from 665,100. The government's accommodation assistance payments rose 3.1 percent to $1.16 billion and income-related rent subsidies climbed 7.4 percent to $755 million, while most other welfare payments, including Working for Families and KiwiSaver subsidies, declined from a year earlier.
Health expenses increased 3.8 percent to $15.26 billion and education costs were up 2.2 percent to $13.16 billion. The Crown's total personnel bill rose 3 percent to $21.76 billion, largely in line with forecast.
The half-year economic and fiscal update will be released on Dec. 8, along with the budget policy statement.
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