The latest government accounts show the economy is in better condition than was expected. Tax take was $500 million higher than expected due to higher-than-expected income tax revenue. That means more money was being earned from wages and salaries than Treasury had forecast; in other words, unemployment is not rising as fast as Treasury had expected. The other effect of employment holding up better than was expected is that government spending on benefits was lower than forecast. Company profits are down, perhaps due to losses on the international markets and the sharp drop in the exchange rate. GST is in line with expectations, so domestic spending is doing OK. All in all, really good news and indicates, as Don Brash says, we are in the best possible condition to weather the international financial crisis.
That crisis has hit the Government’s financial investments. They are worth $1.8 billion less than was expected before the meltdown hit. Markets will go up and down, so the Operating Balance Excluding Gains and Losses (OBEGAL) just looks at the balance between revenue and spending. As Treasury says “By excluding gains and losses the OBEGAL gives a more direct indication of the underlying stewardship of the Government than the operating balance”. That was a $900 million surplus in the three months to September, $500 million more than expected.
Since the end of that quarter, the Government has introduced tax cuts and new spending which will lower the surplus. The new financial statements don’t update Treasury’s forecasts for coming years but, with employment apparently holding up better than they thought, it is likely the deficits in coming years will be smaller than projected.
Gross government debt is a little higher than expected at 17.8% of GDP (vs 17.2% forecast) but the net financial position was right on forecast – net assets of 5.7% of GDP.
So, as good news as there could be given the international situation. There was nothing that could be done to avoid losses for our financial interests when the world markets went into free-fall and company profits have also been hit but the real economy and, most importantly, jobs and wages are doing better than expected.
[as a side note, Treasury has consistently under-forecast employment and over-forecast unemployment for years; ever since unemployment went under 4% four years ago, they’ve been saying it would soon be back above 4%. I wonder if their model fails to account for the self-reinforcing effect of full employment.]