How much this might have improved the Government’s debt position is not as clear as it might have been thanks to Treasury quietly dropping one of itskey debt reporting metrics, net core Crown debt, which has now been fully replaced by “net debt” in the monthly statements, an indicator preferred by the outgoing Government, which brought it in last year.
Treasury recently published figures showing the state of the Government’s books for the three months from the beginning of the fiscal year in July to the end of September.
They showed that tax revenue worth $28.5 billion over the period, core Crown revenue worth $31.9b, and core Crown expenses of $33.3b.
That leaves an operating balance before gains and losses, or OBEGAL, the common measurement of whether there is a surplus or a deficit, of $2.5b over that time. Net debt was $81.4b or 20.6 per cent of GDP.
Finance Minister Grant Robertson. Photo / Michael Craig
What makes the figures interesting, particularly for the incoming Government, is how much they vary from Treasury’s Prefu forecasts published in September. The Prefu forecasts are what political parties based their election spending promises on.
If the monthly accounts come in better than Prefu that means there is more money for the new Government to play with.
Core Crown tax revenue is $309 million or 1.1 per cent higher than expected at the Prefu. Core Crown revenue is $690m or 2.2 per cent higher than forecast at the Prefu.
Expenses, however, are also higher, but only $107m or 0.3 per cent.
This means the OBEGAL deficit is $223m or 8.2 per cent lower than forecast thanks to higher than expected tax revenue. If that continues for the rest of the year, the new Government might find itself in a better-than-forecast fiscal position.
Currently the deficit is expected to be $11.4b, if that 8.2 per cent gap persists it would be $930m lower than forecast in September - something of a win for the Government without it actually having to do anything.
This seems unlikely, as between now and then we are likely to see the impact of dysfunction in the Emissions Trading Scheme properly booked.
The last set of monthly accounts published before the election showed a massive, and unforeseen hit to tax revenue, particularly corporate tax revenue.
It meant the accounts were billions of dollars out from Treasury’s Befu forecast, which at that point was still fresh.
The Government began trimming spending (although this was officially prompted by a spending review announced in the Budget). Weaker Crown accounts combined with leaks relating to those spending cuts saw all three parties that are now forming a Government allege vast holes in the Government’s finances.
Frustratingly, it won’t be until next year when the end of year accounts are published, that we will actually get to see how big the shortfall actually was.
Treasury only compares the monthly accounts to their most recent forecast, which means the current monthly accounts are compared to Prefu. The Prefu which incorporated a lower revenue into its forecast, making the “hole” that resulted from that low revenue difficult to separate out. The monthly accounts cannot be compared back to the Budget forecasts, which would be the best judge of whether there is a “hole”.
We can only do this with confidence when we compare the end of year results back to the Budget forecasts. This can only be done in preliminary form at the next Budget and in final form when the full audited accounts are published next year.
As a rough guide, even if the OBEGAL deficit is 8.2 per cent smaller than forecast in Prefu, it would still be about $3b bigger than forecast at the Budget.
Things are improving slightly, but are still worse than expected in May.
Frustratingly, Treasury has cut the net core Crown debt metric from its monthly accounts. A spokesperson said it would sill be included in the EFU forecasts twice a year and the end of year accounts.
Net core Crown debt was the Government’s main debt metric under the Sir John Key and Sir Bill English Government and the first term of the Dame Jacinda Ardern Government.
It looks at the Government’s net debt position but excludes things like the value of the NZ Super Fund which goes up and down from month to month like a Kiwisaver balance and can obscure the direction of the country’s debt levels. Critics argued the number was not internationally comparable and made the Government look more indebted than it actually was because it excluded valuable assets like the Super Fund.
Labour moved to a more simple “net debt” metric in its second term. Net debt includes things like the value of the Super Fund, which means the net debt number is always lower than net core Crown debt. It is far more comparable with other countries’ ways of reporting debt, but the inclusion of things like the Super Fund means it can be a very noisy metric.
For example, in the most recent accounts, net debt was an astonishing $5.6b higher than forecast at Prefu.
This would ordinarily ring alarm bells, but a massive $2.9b of that was due to market volatility hitting the NZ Super Fund’s portfolio. That isn’t too scary. Like a KiwiSaver, the Super Fund’s value goes up and down. So long as the value continues to rise over time, there’s no reason to be alarmed.
That $2.9b hit is noise that prevents us from seeing the picture of what is actually happening clearly.
National has not been too uncomfortable with the net debt metric since it was launched last year, but the party remains fond of the old Key-English measure. We should know soon whether it is fond enough to bring net core Crown debt back to the monthly accounts. Perhaps the person we should be asking is Winston Peters.
Thomas Coughlan is deputy political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
