Bill English reaps bigger surplus than expected as migration stokes tax take

Finance Minister Bill English today announced a bigger surplus than expected in the last fiscal year as a growing economy underpinned by an expanding population delivered a bigger tax take than anticipated.

The operating balance before gains and losses (obegal) was a surplus of $1.83 billion in the 12 months ended June 30, rising from $414 million a year earlier, and ahead of the budgeted $668m surplus. Core tax revenue climbed 5.7 per cent to $70.45b, beating the forecast $69.68b and outpacing a 2.2 per cent rise in core Crown expenses to a smaller-than-expected $73.93b.

"The New Zealand economy has made significant progress over the past eight years," English said in a statement. "This delivers more jobs and higher incomes for New Zealanders and also drives a greater tax take to help the government's books."

A good surplus warrants a good pie #steakandcheese pic.twitter.com/3n5OqfGaTO

— Bill English (@RtHonBEnglish) October 13, 2016

The country's economy has been growing at a faster pace than expected as record levels of inbound net migration and tourism stoke consumer demand. That expanding population has boosted the size of the labour market, filling an increasing number of jobs and keeping wage inflation muted.

Personal income tax rose 5 per cent to $31.57b, with nominal wages rising and more people working. That fed into a 6.1 per cent gain in goods and services tax to $18.21b. Company tax was up 7.4 per cent to $11.05b on rising business profits.

The bigger tax take reduced the size of the Crown's cash deficit to $1.32b from $1.83b in 2015, and combined with a smaller bond issuance than expected, kept it below the forecast deficit of $2.12b. Net debt was $61.88b, or 24.6 per cent of gross domestic product, as at June 30, compared to $60.63b, or 25.1 per cent of GDP, in 2015. Finance costs fell 5 per cent to $4.34b, less than the $4.47b budgeted for.

English reaffirmed his goal of getting net debt to about 20 per cent of GDP in 2020, and if there's an unexpected windfall, "we may have the opportunity to reduce debt faster and as we've always said, if economic and fiscal conditions allow, we will begin to reduce income taxes".

The Crown's net worth was $95.52b, or 35.5 per cent of GDP, as at June 30, compared to $92.24b, or 35.8 per cent of GDP, in 2015, and ahead of the $89.3b, or 33.4 per cent of GDP, projected in the May budget. Some $2.7b of that increase in value was attributed to the Crown's housing stock, largely because of the strength of Auckland's property market.

The operating balance, which includes unrealised movements in the Crown's investment portfolio and actuarial valuations of long-term liabilities, was a deficit of $5.37b, turning from a surplus of $5.77b in 2015, and bigger than the $2.57b shortfall projected. The turnaround was largely due to a $5.1b actuarial loss on the value of Accident Compensation Corp's long-term liability due to a decline interest rates reducing future investment income to meet those costs.

The biggest increase in the Crown's core expenses was a 5.8 per cent rise in New Zealand superannuation payments to $12.28b as recipients roes to 690,600 from 665,100. The government's accommodation assistance payments rose 3.1 per cent to $1.16b and income-related rent subsidies climbed 7.4 per cent to $755m, while most other welfare payments, including Working for Families and KiwiSaver subsidies, declined from a year earlier.

Health expenses increased 3.8 per cent to $15.26b and education costs were up 2.2 per cent to $13.16b. The Crown's total personnel bill rose 3 per cent to $21.76b, largely in line with forecast.

The half-year economic and fiscal update will be released on December 8th, along with the budget policy statement.