The latest fiscal accounts (for the 11 months to May 2012) have some positives in them, and continue a recent trend of applying discipline (but not austerity) to the government accounts. The following table and figures summarise the actual and forecast Core Crown accounts.
Table 1: Government accounts for the eleven months to the end of May 2012
Core Crown revenue was 1.3 percent above forecast at $55.2 billion, while expenses were 0.7 percent below forecast at $62.0 billion. But, the bottom line, as expected remains in the red. The Core Crown OBEGAL was in deficit to the tune of $6.8 billion, but the impacts of higher revenue and lower expenses meant this deficit was $1.1 billion better than forecast.
Figure 1: Monthly Core Crown revenue and expenditure, actual and forecast
It is also worth looking at the total Crown measures. Total Crown captures a wider sphere of activity (and assets), including the core Crown plus State-Owned Enterprises (SOEs) and Crown Entities (CEs). Because of the profitability of these state owned assets (some of which are about to be sold), total Crown revenues are larger than expenses, compared to the Core Crown equivalents. This means that above forecast revenues have a greater (relative) impact on the total Crown OBEGAL than the Core Crown OBEGAL.
So the story is a little better from a total Crown perspective, with the total Crown OBEGAL $1.1 billion lower than forecast at $5.9 billion.
Treasury’s June Monthly Economic Indicators (MEI) also provide some rays of light, but against a cloudy backdrop. The MEI notes “on the back of strong March quarter GDP, domestic data point to further modest gains in the June quarter… [and] with the established growth momentum and the earthquake rebuild picking up, we expect annual growth to increase over the next year.” The clouds overshadowing this forecasts come in the form of “global developments in June [that] dragged down consumer and business confidence as well as the export sector.”
However, we feel that Treasury is overly optimistic in its forecast for gains and growth momentum. In March, we judged that the New Zealand economy remains, at best, in a holding pattern and in the worst case was headed for a double dip recession. The holding pattern scenario arose from:
- on-going uncertainty from influences surrounding the European and US financial sector
- renewed concern that economic growth in China and Australia may be running out of steam
- little confidence in there being a sustained upturn waiting around the corner
These drivers have not changed. If anything the situation in Europe has worsened. So despite the government tightening its purse strings, the government’s books won’t balance even if expenses are held under tight control. And if the worst case scenario comes about, a recession will reduce revenue growth while also increasing unemployment and social welfare expenditure. Such a scenario will not be pleasant for many, including the Government's books.