Economy growing but fiscal position challenging

The Crown accounts for the first three months of the current financial year are broadly consistent with forecasts, but at the same time highlight the challenge of returning to surplus, Finance Minister Bill English says.

For the three months ended September 30, the operating balance before gains and losses (OBEGAL) deficit was $725 million – $79 million more than forecast in Budget 2014.

Core Crown tax revenue was $73 million (or 0.5 per cent) higher than forecast. Although GST revenue was $175 million (4.1 per cent) below forecast it was offset by corporate tax coming in $135 million (7.1 per cent) higher than expected, and other individuals tax being $79 million (also 7.1 per cent) higher. At the same time, Core Crown expenses were $123 million (0.7 per cent) higher than forecast.

“The accounts illustrate what I’ve been saying recently,” Mr English says. “The economy is growing solidly and this is supporting more jobs, allowing wages to rise faster than inflation and keeping interest rates lower for longer.

“But we have an unusual situation with the nominal economy – which is what drives revenue to the Government - increasing more slowly. This is partly because falling dairy prices are impacting on nominal growth.

“While it’s good for New Zealand families to have low interest rates, low inflation and less debt-driven consumption, it makes the Government’s fiscal position more challenging.

“These accounts reflect only the first three months of the financial year, so uncertainty remains regarding the outlook for tax revenue for the rest of the financial year.

“What is clear is that the Government’s spending remains on track and focused on delivering better results. The fiscal outlook has improved markedly over the past six years and ongoing responsible management is required to ensure the improvements shown in the forecasts actually occur.

“In the meantime, what’s most important to New Zealanders is that we have continuing job growth, moderate wage rises, elevated levels of confidence, a steadily growing economy and a Government that’s committed to carefully managing its own spending,” Mr English says.