Ministerial Statement
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. This positive position is the result of the Government’s commitment over the last three terms to reduce debt and more recently build up financial assets.
The financial statements for the year ended 30 June 2007 will be the last set prepared on a current GAAP basis, with future reporting being on an NZ IFRS basis. They show an Operating Balance excluding Revaluations and Accounting Changes (OBERAC) surplus of $7.9 billion or 4.8 percent of gross domestic product (GDP). This compares with $8.6 billion (5.5 percent) for the previous year. After allowing for capital investment the government recorded a cash surplus of $2.6 billion, down from $3.0 billion in the year ended 30 June 2006. Most of the cash surplus has already been built into spending and tax plans.
The New Zealand Superannuation Fund earned $1.1 billion for the year ended 30 June 2007, once again exceeding expectation and meaning the Fund’s balance has grown faster than expected. At 30 June 2007 the NZS Fund assets stood at $13.0 billion.
Gross sovereign-issued debt (GSID) increased by $0.7 billion in 2006/07 to $36.2 billion, but fell as a percentage of GDP. At 21.7 percent of GDP, GSID is consistent with the Government’s long term debt objective of GSID broadly stable at 20 percent of GDP over the next 10 years, especially if looking through the Settlement Cash levels held by the Reserve Bank. When the Government took office in 1999 GSID was close to 35% of GDP – having met the challenge of reducing debt to prudent levels, the next challenge is to maintain fiscal discipline by keeping debt around current levels.
Net core Crown debt was $3.4 billion (2.1 percent of GDP). Including the assets of the NZS Fund, the Crown was in a net financial asset position of $9.6 billion (5.7 percent of GDP).
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 and to have a buffer against external shocks. 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. The net result of these developments is that the Government was removing significantly more demand from the economy than forecast at Budget time – it would be difficult to argue that the Government is contributing to inflationary pressure.
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 solid but slower economic growth.
Hon Dr Michael Cullen
Minister of Finance
28 September 2007
