The revelation yesterday that the Government’s accounts were in surplus by $1.1 billion in the 11 months to June 30 should force a temporary cease fire in the cross party deficit wars that have passed for economic debate in Parliament since the Budget.

Labour’s Grant Robertson has been particularly energetic on this front particularly when he has been questioning either the Minister of Finance or Reserve Bank officials at the Finance and Expenditure Select Committee.

The trouble with his approach though is that deficit forecasting seems only step removed from “think of a number and double it”.

And for a politician who aspires to be Minister of Finance there are other dangers.

The same Treasury officials who have been getting it wrong for Bill English might well turn out in the future to be the officials getting it wrong for Minister Robertson.

However he’s actually had little to say on today’s announcement.

But if he were to unpick the numbers he might find that Mr English is facing some potentially worrying trends.

The sudden surplus comes mostly from a boost in corporate and provisional tax which is probably not surprising given that we’ve just been through a boom.

Government expenditure was below forecast partly because of timing issues with education payments which suggests that the final Government spending figures for the year could show a bulge in spending over June, the last month of the financial year.

But the interesting figure was GST which measures current economic activity much better than corporate or provisional tax which necessarily look backwards.


In the language of Treasury’s press release “GST was $261 million lower than forecast, implying downside risk to the full-year GST result.”


“Improving macroeconomic conditions have led to growth in other individuals’ tax (15.1%), corporate tax (14.4%) and other direct taxes (13.4%). GST grew by 5.5%”

So GST grew but at only about 385 of the rate that the “historic” taxes grew.

Last month’s financial statements which measures the period up to April showed GST ahead of forecasts by $141 million.

But over most of the financial year it’s been tracking up to $261 million behind the forecasts.

Treasury admitted in its September report that the reduction in GST was due to “lower than forecast consumption growth”.

So that when you add all this up you get the impression that out in the real economy, away from the Christchurch rebuild and the Auckland housing market, things might not be quite as glossy as the overall figures suggest.

That point was made  (with a healthy dose of spin) by the Greens Co-Leader Metiria Turei who said: “Declining business confidence, collapsing dairy prices, stagnant wages, and the possible slow-down of the Chinese economy mean the Government may soon need to start spending again to avoid a recession.”

The question of whether the Government might increase spending if growth started to slow was canvassed at the prime Minister’s Monday press conference at some length.

He accepts the principle that the Government should spend more “at times when the economy is slow even if tax revenue is coming down.”

He said: “In the end we will see growth goes — it may well slow down a bit because of China or maybe what happens with Greece and Europe or ultimately dairy prices.

“But we are still reasonably optimistic that growth will remain at a robust enough clip.”

And he was ready to proclaim the virtues of yesterday’s surplus.

“One of the reasons you try to get back to surplus and live within your means  and reduce the amount of debt that the Government has is to ensure that if that  rainy day comes you are actually prepared and in a position to be able to spend money.”

And he indicated there wasn’t much room for the Reserve Bank to drop interest rates even further.

“Given how low base rates are, you don’t have a lot of room to move in terms of interest rates because you can’t make those big substantial cuts.”

Setting aside the fact that the Prime Minister loves to talk about the economy, particularly if he can use numbers, that he did muse aloud about what the Government might do if growth slowed, suggests at least he and Bill English, if not the whole Cabinet, have actually talked about it.

That also suggests the prospect of a bigger than expected slow down might be more real than so far is generally accepted. © Front Page Ltd 2015.