In the 2015 Budget a minuscule surplus of $176 million was forecast for the 2015/16 year.
The actual (OBEGAL) surplus outcome is $1.8 billion which is significantly higher than expected. This represents 0.7% of GDP. The surplus last year was $414 million.
It looks like we have gone from structural (permanent) deficits to a structural surplus. This is a significant achievement.
Almost every other OECD country is still in deficit, and may remain there for a long time. They will face a real challenge if there is another global recession. And on average you get one around every 10 years. They have been:
- 1987 – sharemarket crashes
- 1998 – Asian crisis
- 2008 – global financial crisis
So in the next five years, we could well have another international downturn.
Here’s what the latest operating balance figures are for major OECD countries:
So NZ is much better positioned that most countries to withstand another downturn.
So how did we do this. The key data is:
- core crown expenses under 30% (29.4%) of GDP for first time since 2006
- net debt has stabilised at 24.6% of GDP (down 0.5%)
- net worth grown to $89.4 billion (up $2.9 billion)
- assets up $13.5 billion and liabilities up $10.2 billion
- Five years ago the deficit was $18.4 billion following the GFC and the earthquakes
- Tax revenue increased $3.8 billion (5.7%) this year but core crown expenses increased by only $1.6 billion (2.2%)
- There were one off losses of $7.2 billion related to ACC and GSF, but these are on paper and bounce around every year (the three previous years they have been gains not losses)
They key is the fiscal discipline where spending increases at a slower rate than economic growth and tax revenue. Tax revenue was $1.6 billion higher than forecast in the 2015 Budget and spending $600 million less than forecast.
The size of the surplus means the case for tax cuts in the 2017 Budget is stronger. Tax revenue has increased $15 billion since 2012 and has gone from 25.6% of GDP to 28.0%.
You can really see the spending restraint. Since 2012 spending has increased by only $5 billion (over four years). We would never have got back into surplus without this. Most of the extra spending has been health ($1.5 billion higher) and education (also $1.5 billion higher).
By comparison Labour increased spending by a massive $14.6 billion over three years (2006 to 2009). This is what left us with a structural deficit when the recession hit.
We’ll find out in December the official forecast for the surplus for 2016/17 and the next three years. I expect they will be large enough that the Government can afford to reduce taxes on families and businesses, increase spending in key areas and reduce debt. A balanced Government should do all three.