The Government's finances have finished the last fiscal year in much better shape than expected when this year's Budget was delivered in May. The deficit for the year to June is nearly $2 billion lower than forecast, which increases the likelihood the Budget will be back in surplus by June 2015, possibly by a healthier margin than has been forecast.
As always, there are caveats on a sunny prospect. The costs of the Christchurch earthquake repair during the year were lower than estimated, and that bill could be merely delayed. There is also continuing uncertainty in the international economy. Finance Minister Bill English was right to warn that the year's result is not a green light for a higher level of spending.
But he should not rule out an earlier resumption of contributions to the NZ Superannuation Fund. The Government suspended contributions when it inherited a deficit, pointing out that the "Cullen fund" had been set up by the previous Government when the Budget was in surplus and it would make no sense to maintain contributions with borrowed money.
But as soon as a small surplus was in prospect, Mr English moved the goalposts. His Budget this year announced that contributions would not now resume until net Government debt fell below 20 per cent of gross domestic product, which is not expected to happen until the 2020/21 fiscal year. By then, the baby boom's retirement will be approaching its peak numbers and the fund that was intended to help future taxpayers meet the cost will have been starved of contributions for a decade.
Fortunately, the fund has been performing quite well with capital the previous Government put into it. Ironically, its investments, with those of the ACC fund, contributed $6.2 billion to the latest improvement in the Government's books.
When Mr English looks forward to running cash surpluses and says, "The choice is whether to reduce debt to more prudent levels or to put the money into world sharemarkets", the markets option is not as reckless as he makes it sound. World sharemarkets have been doing well because of the liquidity put into leading economies by their central banks after the global financial crisis, while real economic activity has shown little recovery.
Leading economies have been in this condition for five years. The United States Federal Reserve recently tried and failed to start withdrawing its stimulus. It is possible the world could still be in this state when New Zealand's public accounts are back in the black.
By committing the surpluses to further debt reduction, the Government is insuring against a global turn for the worse. Public debt rose from below 20 per cent of GDP before the 2008 recession to stand at 26 per cent now. The Government wants it back down quickly so that it might help the country weather another international shock if need be.
This might be the most prudent course while the world economy remains uncertain, but the looming burden of national superannuation matters, too. The Government has done nothing to prepare the country for that shock. Not only has it suspended fund contributions, it has set its face against any increase in the age of entitlement or other changes to national super.
The Government argues that economic growth is the only ultimate guarantor of future pensions, and its revenue to June reflects another good year. But in May it will be budgeting for a surplus in election year. Opposition parties will suggest plenty of needs to be met. They, too, should not forget the super fund. It should be the first call on spare cash.