Crown accounts: Treasury releases Government books, Robertson’s ‘global economic pain’ warning for NZ

Finance Minister Grant Robertson warns the storm clouds are gathering. Photo / Mark Mitchell

The Government’s books are in relatively good shape, as New Zealand charts a course into what the Reserve Bank believes will be recession.

Finance Minister Grant Robertson is warning the slowdown will hit the Government’s books.

Crown accounts for the four months to the end of October were released by Treasury today, showing a mixed picture.

The Government is in deficit, the debt pile is growing, and inflation is adding to the tax take - but the overall picture was healthy in relative terms; debt is still low as a percentage of GDP, and the deficit is shrinking and smaller than forecast.

But Robertson warned this relatively benign picture would likely deteriorate.

He said the results showed the economy was “continuing to show its resilience even as global economic storm clouds gather”.

“The sobering reality is global growth is slowing and New Zealand will not escape its impact, with forecasts of a shallow recession next year,” Robertson said.

This month is an important one in the political financial calendar. It is when Treasury releases its Half-Year Economic and Fiscal Update, or HYEFU, a bible of forecasts about the New Zealand economy. This is accompanied by the Budget Policy Statement, in which Robertson sets out roughly how much he will spend in next year’s Budget and what the overarching goals of the Budget will be.

Robertson warned the HYEFU forecasts might be grim.

“The deteriorating global situation will flow through to the Government’s books. The Treasury’s Half year Fiscal and Economic Update on 14 December will provide more detail on its likely impact on New Zealand, but the direction of travel is clear,” Robertson said.

Core Crown tax revenue for the four months to the end of October was $36.2 billion, just $62m or 0.2 per cent off Treasury’s May forecast.

Drilling into the numbers a bit, Treasury said source deductions - this is the tax employees pay from their wages - were up $600 million on forecast, or 4.4 per cent. Treasury said this was a reflection of strong employment and wage growth.

Offsetting this slightly was GST revenue, which was $200m below forecast. Treasury reckons this could be a reflection of people buying less thanks to weakening consumer sentiment.

Core Crown Revenue was $39.9b which was $319m above forecast. This was mainly thanks to higher Emissions Trading Scheme revenue which rose above forecasts thanks to the carbon price steadily rising.

On the expenses side of the ledger, expenses for the four months to the end of October were $41.8 b, which was $500m above forecast.

High interest rates were hitting the Government’s finances. Financing costs were $500m above forecast, with the “key driver” being the cost to the Crown of the interest paid on settlement deposits held by the Reserve Bank. This money is paid to private banks with a settlement account at the Reserve Bank.

Health expenses were $400m higher than forecast, mainly because of Covid-19 vaccine spending.

The operating balance before gains and losses (obegal) was a deficit of $2.8b, slightly below the forecast of $3.0b.

Net debt was 19.5 per cent of GDP. This was higher than forecast, thanks to the Super Fund’s portfolio.

Ironically, the Super Fund has only been measured in this metric of GDP since Robertson signed off a new debt metric at the Budget. By the old measure, which excluded the Super Fund, net core Crown debt was below forecast at 39.4 per cent of GDP compared with projections of 40.4 per cent of GDP.