Finance Minister Grant Robertson was yesterday either playing it safe or is genuinely nervous about the immediate future of the economy.
The surplus was a whopping $5.5 billion surplus, but Robertson was ultra-cautious about how sustainable it might be.
The surplus was nearly double the 2017 Budget forecast of $2.9 billion and (in nominal terms) is the largest government surplus ever recorded in New Zealand.
But in the Beehive and throughout the Minister’s press conference, there was little celebration.
Robertson was worried that the economy might start to slow down. And in the Beehive, they were worried because he was worried.
“I would say that the risks are either neutral or to the downside,’ he said when asked about the prospects for Treasury’s forecasts for the coming financial year.
“That is what my take would be at the moment, but we will wait and see at the Half Yearly (Economic and Fiscal) Update where the Treasury gets to on that. (the Update is due in December).
“I am particularly focussed around these international matters.
“Clearly business confidence is an issue to the extent that it would flow into actual decisions and actual growth in the economy.
“We saw an excellent June quarter; I am looking forward to a good quarter in September, and if that happens then we will be on track or about on track.
“But if you look at the international environment there are clearly risks there that have to be born in mind.”
The surplus figure itself was also a bit shaky.
It was largely derived from the populations growth (up two per cent, boosted by a net inflow of nearly 65,000 migrants in the year to June) and with that growth came an increase in income tax and GST which together were up $4.6 billion.
Migration has, however, been falling since June.
For the August 2018 year, the net gain in migrants was 63,300, down 8,800 from the August 2017 year.
Added to the tax boost was some deferred expenditure.
Sums budgeted for the Provincial Growth Fund and social housing will now be spent in the 2018/19 year.
Even so, Robertson came under pressure yesterday to spend the surplus.
Greens co-leader James Shaw welcomed the surplus, “which should allow us to invest in communities and ensure increased well-being for New Zealanders.”
However, Robertson said the Government was not awash with cash.
“It is important that we have money set aside for the classic rainy day and we know that these accounts don’t include expenditure that we are having to undertake on Mycoplasma Bovis.
“So there are always a lot of things that sit in the Government’s accounts that we need to look out for.”
All up, the Government has quantified $9.4 billion of contingent liabilities across the core crown sector, Crown entities and OEs.
But there is also a range of unquantifiable liabilities including legal actions such as Treaty settlements and a number of claims against the crown relating to bio-security breaches.
The statement itself was a mine of obscure data about the activities of the Government:
Te Papa and the Archives were valued by the well known Wellington auctioneer, Dunbar Sloane and the National Library by Ashley and Associates — Ben Ashley is an Auckland-based art and rare books appraiser who is also the literary executor of the estate of New Zealand poet, Sam Hunt.
Overall, no matter how sound the books currently are, the clear impressions was that it was the international situation that was worrying Robertson.
“We continue as a country which relies on the export of raw commodities to be subject to the volatility of commodity markets and that means we cannot be certain of the pathway ahead and that’s why we want to move to more a value-add approach.
“But we have to be aware of that.
“We have to be aware of the potential instability in the global trading environment, and what that means for overall global growth figures and what that means for the markets we trade into; in particular China.
“So we have to be prepared for the fact that the long-term growth of the New Zealand economy will be a little bumpy particularly as we transition away from our reliance on population growth and housing speculation.”
Summing up he said the risks were the international environment and the prospect of further bio-security incursions.
“It is the prospect of our economy, which is a small economy in the world; the prospect of our economy, which is a small economy in the world falling victim to something that might happen that is totally out of our control.”
Westpac Senior Economist, Michael Gordon said the stronger than expected surplus “provides some leeway if economic growth fails to live up to the Treasury’s upbeat forecasts.
“It also implies that in upcoming fiscal updates the Government could announce even more stimulus for the economy than is already planned.”
And the Government may have some room for that.
Net debt was 19.9% which is actually the figure that Labour has promised to reach in 2023.
So Robertson does have some leeway on the debt track; a fact he acknowledged, and he also pointed out that with GDP growth that would allow more borrowing which would be used particularly for investment in health capital expenditure.
National was left arguing that the accounts showed Labour could afford to reduce fuel taxes — but the Opposition are probably entitled to feel a little miffed; after all for four months of the fiscal year reported on, they were the Government.
But yesterday Robertson was happy to take the win.