It is hard to overstate the good news that has emerged from the Government's accounts this week. A $5.5 billion operating surplus is far ahead of the $3.1 billion expected in the May budget. More important, it reduces Crown debt below 20 per cent of GDP for the first time since the global financial crisis. Crown debt is the single most important figure in an open economy. It is the figure international banks, financial analysts and credit agencies watch most closely when evaluating how well a country is governed.
It is not the only measure of good government of course but without good international credit and a strong currency, all the other measures of a nation's health and wellbeing are liable to be much harder to afford.
The aim to get net debt back down below 20 per cent of GDP was set by the previous Government very soon after the financial crisis. It did not expect to get there before the 2020-21 fiscal year. The Labour Party went to last year's election with the same target but gave itself an extra year to get there. Now, to everyone's surprise, we have hit the target four years earlier than expected.
Almost certainly, it will not last. Finance Minister Grant Robertson is the first to admit some of the new Government's big expenses have yet to come through. He does not want his party and its coalition partners thinking he has piles of surplus cash to lavish on social, environmental and infrastructure projects not yet budgeted, and it has just become that much harder for him to resist the state sector pay claims the new Government is facing.
But delayed expenditure is not the only reason for the big surplus. Tax revenue is better than expected, reflecting the cancellation of National's tax cuts that would have taken effect in April and the continuing good health of the economy. The lack of business confidence in the new Government ought to be dissipating at news like this. Business has only employment law and labour shortages to worry about, the country's financial management is still sound.
The fact that the Government has hit this target, no matter how briefly, should strengthen its hand against those of its supporters who argue the debt target is not important and unduly restricting. Until now, the target has seemed elusive, mainly because the National Government was in no hurry to reach it. A budget surplus of this magnitude would have encouraged Sir John Key to be openly contemplating further tax cuts. But the June result, built on National's previous control of spending, shows the target is achievable and should be solidly in the bank sooner than 2022.
The low debt inherited from Sir Michael Cullen allowed National to run large deficits in the post-crisis recession and after the Christchurch earthquake. Since 2013, the public accounts have been improving with economic growth. The budget is well on course to carry the country through the next shock, whatever form it takes and whenever it may be, and the Government needs to keep it that way.