Fiscal position weakens, but headroom remains for floods

The Government's books are in deficit, but there is money to pay for flood damage. Photo / Dayna Nuku

The Government’s books are tracking close to where Treasury forecasts them to be, with the fiscal position weakening only slightly from the last set of forecasts published in December.

The books are still in deficit and debt levels continue to rise - and rise faster than forecast.

However, it remains low in relative terms, and Finance Minister Grant Robertson was quick to say that headroom remains to respond to Cyclone Gabrielle.

“The extreme weather that New Zealand has experienced recently is putting families and businesses under even more pressure, with some losing their homes and livelihoods. We are committed to continuing to support them through these difficult times.

“New Zealand is in a strong financial position to do so thanks to the Government’s careful and prudent management of the books. The impacts of flooding in Auckland in late January and now Cyclone Gabrielle have yet to be fully known and the Treasury is currently accessing the economic and fiscal impact,” Robertson said.

The fiscal position is weakening, however. Core Crown tax revenue for the six months ending December 31 was $54.5b - that was $375m less than forecast.

Core Crown expenses were $62b over that period, $287m higher than forecast.

Treasury’s commentary on the figures said the most notable variance from its forecasts were higher finance costs for the Government, which were $400m higher than expected.

The key driver of this were interest costs the Government had to pay on the settlement deposits that banks have with the Reserve Bank.

The operating balance before gains and losses (OBEGAL), the most common measure of whether the books are in deficit or surplus, was $2.847b, just $39m more than forecast.

While revenue was lower and expenses were higher than expected, the operating balance was helped by better than expected financial results from Crown Entities and State Owned Enterprises.

Net debt stood at $80.472b or 21.6 per cent of GDP, about $1b higher than forecast or 0.3 percentage points higher than forecast.

Robertson said the accounts showed the country’s “resilience through the Covid pandemic due to our strong economic and financial management”.

“Our debt levels are among the lowest in the OECD and well below the Government’s debt ceiling of 30 per cent, ensuring we are well positioned to handle the impacts of Cyclone Gabrielle and future economic shocks.”