The Government’s books are running about $3 billion better than forecast just months out from the general election, giving Finance Minister Nicola Willis a rare piece of good economic news to campaign on.
The Financial Statements of the Government for the eleven months to the end of May, released on Thursday, show the operating deficit before gains and losses sitting at $6.8 billion. That is still a large shortfall, but it is $3 billion smaller than Treasury expected when Willis delivered her Budget in May. The headline measure the Government uses, known by the shorthand OBEGALx, strips out some volatile items to give a cleaner read on day to day spending against revenue.
Two things drove the improvement. Core Crown revenue came in $1.7 billion above the Budget forecast, while core Crown expenses were about $900 million lower than expected. In plain terms, more money came in the door and slightly less went out.
The single biggest contributor was company tax. Willis said corporate tax revenue was $700 million higher than forecast. “The biggest contributor to the improvement in Crown revenue was corporate tax revenue being $700 million higher than forecast,” she said in a statement, adding that “this is positive because it indicates an overall increase in profitability for the business sector.”
The Finance Minister was quick to frame the numbers as evidence the recovery is taking hold. “These are a very encouraging set of accounts,” she said. “New Zealand has been through a difficult few years, but Kiwis can take heart from the underlying strength of the economy.”
Willis herself was careful not to bank the gains. The full year accounts will not be finalised until early October, and she acknowledged the picture could still shift. “The Crown accounts for the full year won’t be finalised until early October and further variance is likely but these are positive signs the books will be in better shape than forecast at Budget,” she said.
That caution matters, because a chunk of any monthly improvement in the Crown accounts usually reflects timing rather than permanent change. Money set aside for a health programme or a housing project that has not yet been spent shows up as an underspend one month and can reappear the next. A single strong month for company tax also does not guarantee the trend holds for the rest of the year.
Even so, the direction of travel is politically useful for the Government. Willis has spent much of her term managing expectations downward, pushing out the date for a return to surplus and warning that the books were in worse shape than she had inherited. A set of accounts that beats forecast, driven partly by rising business profitability, lets National argue that its approach of trimming spending while waiting for growth is starting to pay off.
The opposition has consistently made the opposite case, arguing that the Government’s spending restraint has come at the cost of health, housing and other frontline services, and that some of the savings showing up in the accounts are really services that people are not getting. Voters will get to weigh those competing claims at the ballot box later this year. If you want to see where the parties stand on tax, spending and the economy before you vote, you can compare their positions using our voting tool.
The figures land against a wider backdrop of a fragile recovery. Recent data has shown filled jobs edging up and some economists suggesting the worst may be over for the labour market, but households have also been pulling back, cutting spending on things like dining out at the fastest rate in decades as they wait to feel more secure. An improving set of Government accounts does not automatically translate into more money in people’s pockets, and the deficit, while smaller than feared, is still measured in billions.
For the Government, the timing could hardly be better. Fiscal management is one of National’s traditional strengths, and being able to point to a deficit that is shrinking faster than expected gives it a clear line heading into the campaign. For Labour and the smaller opposition parties, the challenge will be to shift the conversation from the size of the deficit to who is bearing the cost of closing it. More detail on the day to day running of Parliament and the Government sits with RNZ political news.
The final word on this year’s books will come in October, when Treasury signs off the full year accounts. Until then, both sides will read the same numbers very differently.
What do you make of the Government’s improving books, a genuine turnaround or an election year talking point? Have your say in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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