The increase in revenue has not been enough to stave off the deficit. This 2024 financial statement saw the largest OBEGAL deficit since COVID-19 and the GFC.
The 2024 financial statements of the Government show that core Crown tax revenue increased by $8.2 billion from the previous year. $4.9 billion of this came from an increase in PAYE tax revenue. The Treasury has put $3 billion (61 percent) of this increase down to wage growth. Tax revenue accounts for 91 percent of the government's total core Crown revenue. Other core Crown revenue comes from investments, sales of goods and services, and other revenue streams. While previous fiscal years have seen an increase in corporate tax revenue this year saw a decline of $1.1 billion. GST revenue increased by $1.1 billion.
A key theme of this year’s financial statements is the significant increase in government debt that took off during COVID-19 and has been climbing ever since. Core Crown net debt was $175 billion or 42.5 percent of GDP, and the operating balance before gains and losses (OBEGAL) was at a deficit of $12.9 billion. This is the fifth year in a row that the OBEGAL has run a deficit and marks the highest deficit since the height of COVID-19 in 2020, and the GFC prior to that. New Zealand’s net debt is currently at 19.9 percent of GDP. The graph below, from the International Monetary Fund (IMF), which calculates net and gross debt slightly differently to the Treasury, compares New Zealand’s general government debt levels as a percent of GDP to other similar economies, including the average of the G7 advanced economies (95.4 percent of GDP). As the chart shows, New Zealand’s debt levels are still much lower than many comparable countries.
According to the IMF’s figures, average government net debt among developed economies is currently 82.5 percent of GDP. Among the advanced G7- economies it sits at 90.8 percent of GDP. By comparison, net government debt in New Zealand – using the IMF’s measure – is 23.9 percent of GDP.
This string of deficits saw the Minister of Finance once again reiterate the need for fiscal restraint. The message was clear that the Government is hoping for strong growth in the economy to help pay down some of the deficit. One of the key drivers for this growth will be relying on the Reserve Bank on New Zealand (RBNZ) to continue to cut the Official Cash Rate (OCR). Cutting the OCR will help to lower the cost of mortgage repayments and increase house prices.
In her press statement, the Minister of Finance stated that “the accounts also show the corrosive impact of low growth and low productivity, [we’re] determined to drive economic growth [by] lifting education and skills development”. This begs the question, are we investing enough in our vital social infrastructure of health and education? The government books show that at Budget 2024, the Government had planned to decrease Crown spending on health by four percent, although it ended up increasing health spending by 0.1 percent, which is significantly lower than inflation (CPI) of 3.3 percent for the same period. Core Crown spending on health was up five percent, which was only a small increase on inflation. In 2023, Te Whatu Ora – Health New Zealand published a Health Workforce Plan which highlighted a large shortage of around 8,320 staff in their current workforce. On top of this, the report estimated that in order to maintain current staffing levels, New Zealand will need to recruit or train 1,600 more health professionals per year.
Total Crown spending on education for 2024 increased by nine percent from 2023, and core Crown spending on education increased by 10 percent, which is in line with Budget 2024 estimates. According to the New Zealand Post Primary Teachers’ Association (PPTA), secondary teacher shortages are at “crisis point”. Last month, Early Childhood Education New Zealand reiterated that New Zealand has a sizeable teaching shortage in need of government investment.
Government accounts 2024, actual versus forecast
| Percent of GDP | $ Millions | |||
|---|---|---|---|---|
| Forecast | Actual | Forecast | Actual | |
| Tax revenue | 28.8 | 29.2 | 118,334 | 120,566 |
| Total revenue | 40 | 40.5 | 165,050 | 167,347 |
| Total expenses | 42.5 | 43.6 | 175,651 | 180,061 |
| Net core Crown debt | 43.1 | 42.5 | 178,094 | 175,464 |
| OBEGAL | -2.7 | -3.1 | -11,074 | -12,854 |
Source: The New Zealand Treasury
In summary, the 2024 financial statements were in slightly better shape than expected due to tax revenue and total revenue being higher than forecast and net core Crown debt being $2,630 million lower than expected. That being said, OBEGAL was worse than forecast and total expenses were $4,410 million higher than forecast. In the year to come we can expect to see this government continue its fiscal restraint, spending will be constrained, and we may still see more cuts to come.