November 15th, 2024

Government financial resilience tested as revenue growth slows

New Zealand's net debt currently stands at 19.1% of GDP, below the forecast of 20.4% of GDP, and among the lowest in the world.

The dip in tax revenue is slightly offset by core Crown expenses being $0.7 billion below forecast, but the Operating Balance before Gains and Losses (OBEGAL) still recorded a deficit of $3.4 billion.
The dip in tax revenue is slightly offset by core Crown expenses being $0.7 billion below forecast, but the Operating Balance before Gains and Losses (OBEGAL) still recorded a deficit of $3.4 billion.

The government finances remain resilient despite an economic slowdown that has resulted in core Crown tax revenue falling $2.3 billion below forecast, according to Finance Minister Grant Robertson. As economic activity moderates, the government is bracing itself to tackle a range of challenges including the rising cost of living, weather-related damages, and an uncertain global economy.

Why it matters: The dip in tax revenue is slightly offset by core Crown expenses being $0.7 billion below forecast, but the Operating Balance before Gains and Losses (OBEGAL) still recorded a deficit of $3.4 billion. This deficit is significantly smaller than the same period a year ago, reflecting the robustness of the nation's economy in face of global adversities.

  • Debt level check: New Zealand's net debt currently stands at 19.1% of GDP, below the forecast of 20.4% of GDP, and among the lowest in the world. This puts the nation in a good position to deal with future challenges, according to Robertson.

Coping with economic challenges: With unemployment at near record lows and tourists and overseas workers returning in greater numbers, the Minister stated that the government is making tough choices to manage finances responsibly amid the economic downturn.

  • Weathering the storm: The government has estimated that the recent floods and cyclone damage will cost between $9 billion and $14.5 billion, half of which is related to government-owned infrastructure. Despite these setbacks, the government is committed to supporting those affected through the recovery and rebuild process.

Cost of living adjustments: Over 1.4 million people, including seniors, families, workers and students, are currently benefiting from significant income increases. The government has extended fuel tax cuts and half-priced public transport fares, and made childcare more affordable for families. Robertson also highlighted the importance of focusing on the cost of living in the upcoming Budget.

  • What's next: The government's prudent financial management has given it the fiscal headroom to meet the impacts of the recent cyclone and other challenges ahead. The Finance Minister emphasised that the government aims to strike a balance between providing immediate support to Kiwis, investing in essential public services and infrastructure, while carefully managing resources to ensure long term economic sustainability.