NZ still well placed as economic conditions impact Govt accounts
The resilience of the New Zealand economy, including through strong employment data and low levels of government debt, is supporting Kiwis as the moderation in economic activity is being reflected in the Government’s books.
“This year is a difficult one for the global economy, marked by slowing growth and prolonged high inflation. New Zealand is not immune to those forces while the North Island weather events have also taken their toll on affected communities, which will flow through to the Government’s books,” Grant Robertson said.
“New Zealand is well placed as we face these challenges, with people in work in record numbers, wages are growing, inflation pressures are easing, tourists and international students are returning and overseas workers are helping business fill vacancies.
For the eleven months to the end of May, the Operating Balance before Gains and Losses (OBEGAL) recorded a deficit of $6.5 billion. That was $2.1 billion higher than forecast at Budget 2023 and $1 billion lower than for the same period a year ago.
Core Crown tax revenue was $2.2 billion below forecast, mainly due to lower corporate profits and investment returns. Core Crown expenses were $249 million below forecast. Net debt was slightly above forecast at 18.9 percent of GDP.
“The cooling economy has resulted in lower-than-forecast tax revenue. In these accounts the lower corporate tax revenue particularly relates to terminal tax and is reflective of corporate profits for the 2022 year being less than forecast,” Grant Robertson said.
“The Government had already taken steps to respond to the uncertain economic environment by carefully and responsibly managing its spending. The deficit is smaller than it was at the same time a year ago. Budget 2023 is forecasting real government consumption to fall 5 percent by the beginning of 2025. Our debt levels are among the lowest in the world.
“At the same time our focus remains on protecting and supporting Kiwis dealing with the rising costs of living, providing strong public services and sustainably growing the economy without unnecessarily adding to inflation.
“In these challenging times there are some positive signs. Unemployment remains at historic lows, and levels of employment are high. The most recent data shows 2.37 million jobs, with an increase in the most recent month of May of over 5,400. Inflation appears to have peaked, and business confidence, particularly in their own activity, is starting to improve.
“We know the North Island weather events will have a sizeable impact on the Government’s finances this financial year and in coming years’ as we support the communities and regions affected with the recovery and rebuild. The Treasury has estimated the costs of asset damage from the floods and Cyclone at between $9 billion and $14.5 billion, with half of that related to central or local government such as roads.
“Some $2 billion of additional support has been committed so far, including a $1 billion flood and cyclone recovery package as part of Budget 2023. Another $6 billion in initial funding has been committed for a National Resilience Plan to focus on building back better from the recent weather events.
“The Government is supporting growers, farmers and businesses affected by the North Island weather events by underwriting bank lending and offering cheaper finance options and ensure the long term survival of critical regional industries. Discussions are also continuing on cost sharing arrangements with councils on buying out high risk properties due to the extreme weather events while the Government will also co-fund work needed to protect Category 2 designated properties.
“Our responsible financial management means we have the fiscal headroom to meet the impacts of extreme weather events and future challenges. Our debt levels at 18.9 percent of GDP are among the lowest in the OECD and well below the Government’s debt ceiling of 30 percent.
“We are striking a balance between supporting New Zealanders in the here and now and investing in strong public services and a resilient infrastructure network while carefully managing our resources to ensure the long term sustainability of the economy,” Grant Robertson said.