Business polls, which I customarily ignore for their innate bias, keep telling us the Government is performing poorly.
When Finance Minister Grant Robertson reported a $7.5 billion surplus in the Crown accounts for the June year yesterday, there was an immediate clamour to spend it.
Mr Robertson acknowledged that the surplus included a number of one-off factors, one of those the revaluation of the country’s rail assets.
He also beat the “spend it now!” pundits to the punch, saying: “The surplus & low levels of debt show the economy is in good shape. This allows the Government to spend more on infrastructure and make record investments in health & education.”
The surplus is on one line of the accounts. Look down further and you can find there’s still a deficit. You can check the main account lines at the foot of this article, or go to the link to the full accounts.
Social spending of the health & education nature is less visible than the immediate personal impact of a tax cut, but should lead to longer-term improvements that benefit society economically through a better educated workforce and through reduction in welfare costs.
The biggest unknown is how global affairs will pan out. Warfare continues unabated in many countries, the initiative of US president Donald Trump to use tariffs to right what he sees as unfair advantage taken by China & Europe has the potential to explode, and both China & the US have initiatives underway for constructive trade programmes around the globe.
The danger of the trade wars for New Zealand is if this country is forced to take sides, one trade partner rather than another. Meanwhile, both China, through its Belt & Road Initiative, and the US through its new International Development Finance Corp aim to encourage investment. According to an Asia Times article last week, the new US corporation, combining the work of the Overseas Private Investment Corp and credit operations of the US Agency for International Development, will offer a wider array of debt, equity & guarantee tools to spur direct & portfolio inflows into low- & middle-income economies, and is also designed to promote national security migration & counterterrorism priorities.
Those constructive trade initiatives may tame the impact of the trade wars, in which case New Zealand can focus on its own productivity, led by the spread of new infrastructure.
The Crown accounts
The annual Crown accounts show an economy in good shape. As well as the surplus, net debt has fallen from 19.9% at June 2018 to 19.2%, in both years below the 20% target in the Government’s budget responsibility rules.
Mr Robertson said corporate profits, employment & wage growth were higher than expected in the May Budget, resulting in tax revenue 2.1% above forecast.
Mr Robertson’s assessment: “The results show businesses are investing, employing more workers & paying higher wages, while at the same time reporting stronger profits.
“This is a timely reminder that the underlying fundamentals of the New Zealand economy are solid. We are growing faster than the likes of Australia, the UK, Canada & the EU, which is being recognised by international investors & agencies like the IMF & Moody’s.
“It’s important that we don’t talk ourselves into a downturn just because it suits some people’s negative narrative. Unemployment, interest rates & Government debt are all low, giving the economy a solid platform to keep growing & face any global headwinds.”
Mr Robertson said the accounts showed the Coalition Government continued to increase investment in areas that were neglected by the previous Government. Capital investment, including in new hospital buildings, classrooms, roads & rail and the Super Fund was up 13.7% over the year.
“New Zealand is well positioned for this point in the economic cycle & any global shocks that may come our way. Fiscal policy has a part to play alongside monetary policy as we manage these challenging global economic conditions. At Budget 2019, we increased infrastructure investment and boosted spending in key areas like health, education and research & development.
“Our strong position gives us the space for further opportunities to strengthen our economy as is necessary.
“The accounts show that we have the balance right. We are tackling long-term challenges by investing in hospitals, schools & transport infrastructure while managing the books responsibly. We are making our economy stronger to make sure we remain resilient and have room to move to support New Zealand through any further challenges ahead.”
The basic figures:
OBEGAL surplus (operating balance before gains & losses): $7.5 billion ($5.5 billion)
Core Crown segment surplus: $6.6 billion
State-owned enterprise (SOE) segment surplus: $3.2 billion ($700 million), up largely owing to the change in rail freight network valuation methodology
Crown entity segment: $1.5 billion deficit ($800 million deficit), up primarily because of higher health board deficits & increased ACC insurance expenditure of $1 billion.
Total Crown operating balance deficit: $2.3 billion ($8.4 billion surplus) – a $10.7 billion change after combining the net losses ($10.1 billion) and the net surplus from associates & joint ventures ($300 million) with the OBEGAL surplus
Net debt: Up $200 million to $57.7 billion ($57.5 billion)
Net worth: up $10.7 billion to $146.3 billion ($135.6 billion), largely due to revaluation of assets such as the rail & state highway networks.
Update: After posting today’s newsletter & the story on the Government’s annual accounts, I had another hunt for the revaluations – check the link here:
Related story today: The Government revaluations
Treasury, 8 October 2019: Government annual financial statement
Asia Times, 3 October 2019: US Development Corp finesses Chinese finance model
US BUILD Act (Better Utilisation of Investments Leading to Development Act of 2018
Attribution: Ministerial release, Government accounts, Asia Times.