Ministerial Statement
The Government’s fiscal strategy is an integral part of our overall approach to economic management. Continued economic growth and rising employment provide the means for New Zealand’s society to create a higher standard of living and a better quality of life.
The Government’s fiscal position is strong. This is no accident. It reflects many years of sound and prudent economic and fiscal management and a period of strong, sustained economic growth. Probably for the first time in our history, the Crown has moved into a positive net financial asset position. This positive position is the result of the Government’s commitment over the last two terms to reduce debt and more recently build up financial assets.
The financial statements for the year ended 30 June 2006 show an Operating Balance excluding Revaluations and Accounting Changes (OBERAC) surplus of $8.6 billion (or 5.5 percent of gross domestic product (GDP)). This compares with $8.9 billion (5.9 percent) for the previous year. After allowing for capital investment the government recorded a cash surplus of $3.0 billion, down from $3.1 billion in the year ended 30 June 2005. Most of the cash surplus has already been built into spending and tax plans, and the remainder will be considered as part of the 2007 Budget.
Gross sovereign-issued debt (GSID) increased by $0.4 billion in 2005/06 to $35.5 billion, but fell as a percentage of GDP. At 22.6 percent of GDP, GSID is within sight of the Government’s long term debt objective of GSID broadly stable at 20 percent of GDP over the next 10 years.
Net core Crown debt was $7.7 billion (4.9 percent of GDP). Including the assets of the NZS Fund, the Crown was in a net financial asset position of $2.1 billion (1.3 percent of GDP). At 30 June 2006 the NZS Fund assets stand at $9.9 billion following the statutory contribution of $2.3 billion and investment returns of $1 billion.
The financial results show the Government is implementing fiscal policy in line with its stated fiscal strategy of strengthening the fiscal position so that it is well placed to respond to future challenges such as those associated with population ageing. Along with some unexpected delays in departmental spending, progress against the Government’s fiscal intentions was faster than expected as a result of stronger economic activity and inflation over the latter part of the fiscal year. Allowing revenue to increase is consistent with our policy of letting automatic stabilisers operate and looking through the temporary effects of the economic cycle.
Looking forward we will continue to strengthen our fiscal position to help meet future spending pressures, but at a much slower pace than experienced over recent years. We continue to expect the OBERAC surplus to fall and net cash flows to move from surplus to deficit over the forecast horizon reflecting a combination of policy intentions and slower economic growth.
Hon Dr Michael Cullen
Minister of Finance
29 September 2006
