Finance Minister Grant Robertson defended the Budget in select committee. Photo / Marty Melville
Personal finance wonks will tell you never to check your KiwiSaver; sometimes it goes up, sometimes it goes down - you have to ride the trend.
Finance Minister Grant Robertson was today dealt a particularly harsh version of this lesson, with Treasury's latest Crown accounts showing the NZ Super Fund, the Government's $56 billion fund to help pay the cost of superannuation performing worse than forecast.
That poor result has added $2.2b to the Government's net debt figure for the 10 months to the end of April.
The fund is actually still performing well, as of April 30 it has delivered a 10 per cent return this year, before tax and after costs.
On Wednesday morning, Treasury published the most recent accounts for the Crown for the 10 months ended April 30, 2022.
Overall, the Government's position has improved relative to Treasury's Budget forecasts published in May.
Core Crown tax revenue was $1.8b, or 2.1 per cent above forecast, hitting $87.9b for the last 10 months.
Treasury said this result was driven by corporate tax payments of $900 million above forecast, owing to increased profitability, and slightly smaller variances in individuals' tax ($600m above forecast), and source deductions ($300m above forecast).
GST revenue was the outlier, being $100m below forecast.
This suggests corporates are becoming more profitable, leading to a larger tax take, while people's spending has remained roughly the same, hence the relatively stable GST take.
Core Crown expenses were $102.8b for the 10 months, $800m below forecast or 0.7 per cent below forecast.
Treasury warned this was not a permanent reduction in spending and the variance was "mainly reflecting timing delays in spending from Government departments".
This contributed to the operating balance before gains and losses being a deficit of $9.4b, which was $3.2b better than forecast.
Before the Budget, the Government changed the way it reported net Crown debt. Under the new measure, the Government will include the value of assets held in entities like the NZ Super Fund. These assets will count against New Zealand's debt, giving a lower net figure.
This is the first month of reporting under the new metric. Unfortunately for the Government, troubled financial markets have meant the new rules saw the debt blow out by $4.3b over what was forecast.
Nominal net debt was $62.9b, 18 per cent of GDP.
Treasury said most of the "variance is driven by unfavourable market conditions impacting the financial portfolio held by the NZSF [Super Fund]", and other Crown entity borrowings.
Robertson noted that "under the old debt measure, which looks through the variability created by the inclusion of the NZ Super Fund, net core Crown debt stood at 37.5 per cent of GDP, $1.13b above forecast".
"As I noted when we announced the new debt indicator, the inclusion of a wide range of government assets such as the New Zealand Superannuation Fund is likely to add more volatility to the level of net debt in the near term. In this case, the difference is mainly due to market conditions affecting the NZ Super Fund's investment portfolio," he said.
Treasury warned that despite revenue being higher than forecast, this was "yet to translate to an improvement in tax receipts", which had flowed through into increased debt. Lower receipts could mean people were holding on to cash, which could indicate an economic downturn around the corner.
Robertson said the figures overall showed the "strong position New Zealand finds itself in despite a highly uncertain global environment dominated by high levels of inflation caused by the Ukraine war, the ongoing pandemic and supply chain disruption".
Robertson defended the 2022 Budget in select committee on Wednesday morning.
National's finance spokeswoman Nicola Willis questioned the size of the allowance of new operating spending allocated in the Budget, which was a record $5.9b this year.
Robertson had increased his forecast allowances for each Budget he has delivered. Willis challenged him to commit to not raising next year's forecast $4.5b allowance.
Robertson would not do this, and said that at times the Government changes the spending it had committed to because of unforeseen events.
"[The allowance] is set at the time of the Budget Policy Statement, approximately five or six months before we actually deliver the Budget.
"It's set on the basis of conversations that happen between myself and the Treasury on how we will achieve a range of macro indicators [like debt levels].
"It's not uncommon that over that six-month period events occur, issues arise, and changing economic and fiscal forecasts happen," he said.
Willis slammed Robertson for not committing to sticking to next year's forecast spending.
"The Labour Government is addicted to spending. Minister Robertson can't even stand by a spending limit he set for himself less than a month ago," Willis said.
"This makes a joke of his Budget commitment to bring the Government's books back in balance. That commitment was made on the basis of a spending limit he never intended to meet," she said.
Willis said the Government was reliant on the economy outperforming Treasury forecasts to hit its macroeconomic targets.
Green MP Chlöe Swarbrick raised a concern that the Government's strict accounting rules, separating operating and capital spending set an unfairly high bar for spending on the operations of the health and education systems.
Operating spending, classed as day-to-day spending on things like salaries faces a far more rigorous assessment than capital spending, which is mainly investment in permanent infrastructure.
Swarbrick said Treasury puts a lot of technical emphasis "on capital spending which has looser rules than operating spending which has strict rules".
She questioned whether this was appropriate in cases where the distinction between operational and capital spending was not clear, especially when Treasury recently advised operating spending has "enduring benefits particularly in the area of health and climate change".
Robertson said this was something he had been discussing with Treasury.
He was particularly concerned with the way accounting rules applied to the Government investing in assets in partnership with other organisations like local government and iwi.
Investment rules mean these are classed as operating spending, unless the Government owns the asset outright.
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