At the end of last week Treasury announced that they were surprised by the lower than predicted tax take. I wasn’t, and I suspect that no-one who is involved in businesses would have been. I am anticipating quite a lot of faux surprise this year and next from the numbwits who have been hyping an illusory “recovery” when it doesn’t happen.
The Crown’s operating balance before gains and losses (obegal) was a deficit of $1.79 billion in the six months ended December 31, $380 million wider than forecast in its Dec. 17 half-year economic and fiscal update, and down from a shortfall of $3.19 billion a year earlier. Core tax revenue was $602 million below forecast at $29.18 billion.
“At this stage it is difficult to determine how much of the lower than forecast tax is temporary versus permanent, but we expect this to become clearer over the next few months,” the Treasury’s acting chief government accountant Fergus Welsh said in a statement.
The smaller tax take was across the board, with GST 2.3 per cent below forecast at $7.5 billion, source deductions for personal income tax 1.2 per cent below forecast at $11.71 billion, and total corporate tax 4.9 per cent below expectations at $3.56 billion.
Now that means that National’s long promised return to a government surplus is going to keep retreating over the horizon. But it is also a pretty good indicator about the real economy. While it could simply be delayed tax payments, it is probably more likely that it reflects the reality of businesses.
It is a small market, and the government simply isn’t providing an environment that fosters economic activity. There are few new jobs, there are few wage increases coming through, and generally business is tough. The lack of effective growth means that businesses are still folding, few new ones are being created (especially new export orientated ones) and the difference between optimistic Treasury forecasts and the reality of the tax take will continue.
Sure it is less tough than it was early last year. But last summer the farming sector was still in the grip of a rather nasty drought with the inevitable flow on effects to the rest of the country. While not as severe, it is still looks pretty damn dry out there this year. Also we didn’t have the much hyped and very belated trickle of rebuild money coming into Christchurch.
The same effect is showing up in other measures. Last year the reserve bank signalled that they were likely to push the baseline interest rate (OCR) from 2.5% to 2.75% to counter price inflation that was persistently above the centre line of their band at 2%. They based this on last years expected inflation expectations. Turns out as the Greens reported, that:-
The Reserve Bank released its March 2014 Survey of Inflation Expectations this afternoon which shows that inflation prospects remain stable at two percent – the mid-point of the Bank’s Policy Targets Agreement.
I completely agree with Russel Norman (and I have to say that I’m still a bit freaked out saying that about any Green economics statement) when he then says:
“We need smart policies to fix the causes of inflation, not the blunt tool of higher interest rates that hurts families and businesses.”
The last Consumer Price Index figures released by Statistics New Zealand show that inflation was 0.1% in the December quarter and 1.6% in the past year. Housing and electricity were significant contributors to the little inflation there was. The Reserve Bank has indicated it intends to raise interest rates this year.
“New Zealand families don’t deserve to be hit with higher mortgage rates when inflation is stable,” said Dr Norman.
“Raising the Official Cash Rate now would hurt the economy and hurt families with mortgages.
“We need smart policies to address inflation in the sectors where prices are rising too rapidly – the Auckland housing market and National’s broken electricity system.”
We have a stalled economy. I see it in my area of interest with the complete lack of new startup export orientated tech businesses over the last 5 years. All the growth that our sector is doing is coming from businesses started when the government gave a damn about them before National cut down the policy garden that they started in.
Even if the government continues with it’s simple neglect of every export sector outside of farming, then it should at least fix the infrastructure factors that are pushing inflation – housing and electricity profit gouging. Instead they’re about to sell another electricity company, Genesis, to patch the hole in their tax take.
Sure businesses are getting excited about the short term benefits of the Christchurch rebuild, but the reality is that it just a one off. It is also likely to get in the way of Aucklands ever increasing deficit in affordable housing that the government has been avoiding addressing. Almost every housing initiative they have been involved in there involves very few affordable houses, and many of the large types of houses that return developers more money. Outside of Christchurch, companies intentions on hiring more staff are going down – not up.
But there are a no longer term plans for growth from this government. But we can expect more high quality hyping of retail sales like this from National’s media outlet. What is the bet that when the stats department releases actual numbers, that we’ll find the December quarter growth to be les sthan expectations.