On July 12th the New Zealand Treasury Department released a statement revealing the country’s latest financial figures. According to the release, the total cash deficit for the period totaled NZD 7.73 billion, approximately NZD 86 million better than forecasted in the national budget. Excluding gains and losses the deficit was NZD 4.7 billion, an estimated NZD 1.1 billion below forecasts. The improvement has been attributed to several delays by the Government in its capital expenditures.

The tax revenue for the period was also NZD 243 million above projections. According to the Government, tax revenues were significantly affected by increased GST collections, which suggest a pickup in consumer spending. Further, Corporate Tax collections rose by NZD 93 million, primarily due to portfolio investment entities (PIEs) earning higher incomes over the period.

The Treasury figures also showed that the New Zealand net debt is NZD 25.4 billion, approximately 13.6 percent of the national GDP. Gross national debt is also NZD 685 million below estimates, at a level of NZD 52.6 billion, or 28.1 percent of GDP.

Photo by *TreMichLan*

On March 5th the New Zealand Government made public its Tax Outturn data for the seven months to January 2010, which it claimed is one of the earliest indicators available to judge the economic conditions of the country. The data shows that the total direct tax revenues for the time period were 1.3 percent lower than projected in the 2009 Half-Year Economic and Fiscal Update, though indirect taxes had risen by 1.8 percent, making the net effect an approximate 0.1 percent drop below forecasts. Compared to the same period in the previous year, the direct tax revenue had dropped by 14.6 percent, and indirect taxes grew by 1.1 percent.

According to the Tax Outturn Data, individual tax revenues had dropped by 1.7 percent compared to projections, and 9.3 percent compared to the previous year. Corporate tax revenues fell by 24.7 percent in comparisons to last year though exceeded forecasts by 1.5 percent. Goods and Service Tax revenues exceeded projections and last year’s records by 2.7 and 1.9 percent respectively. Excise duties were on par with governmental estimates, and surpassed last year by 0.9 percent.

The Tax Outturn Data shows that the total New Zealand Government revenues were NZD 32 billion in the seven months to January 2010, with NZD 19.4 billion coming from and direct taxes and NZ 12.6 billion from indirect taxes.

Photo by Remon Rijper

In order for New Zealand to reach income levels comparable to that of Australia by 2025, New Zealand will require an estimated economic growth rate of 3.3%. According to John Whitehead, for this to become a reality, bold decisions would need to be made in New Zealand’s tax reforms and economic situation.

John Whitehead, conveyed these sentiments at an Institute of Directors workshop in Queenstown on the 25th of September, the notes of which were released by the Treasury on October 7th. Key points from the speech included that New Zealand needs to address the status quo, or choose to accept it, and that productivity growth needed to be accelerated and encourage the unwinding of its economic balances. In regards to current debate, John Whitehead regarded it as concerned with the short-term and that the focus needed to be changed.

The New Zealand economy is predicted to be out of its recessionary period according to the Treasury’s economic indicator report, released on the 7th of September. It is thought that the quarter ending September will be the last in which New Zealand will experience contracted economic indicators. The report was accompanied with the statement “A small decline in real gross domestic product in the second quarter is likely to represent the last quarter of contraction in the current sequence.” Gross Domestic Product figures for the second quarter are due to be released by Statistics New Zealand on the 23rd of September.

The cause of these favorable changes was pegged to improved global economic conditions, New Zealand’s growth inbound migration and increased consumer confidence. Although, it was explicitly stated that it is likely that unemployment will continue its upward trend even into 2010.

It was announced by Finance Minister Bill English and Revenue Minister Peter Dunne that the “Tax Working Group” has been established and will assist the Government with policy decision changes. While the newly formed group will not have direct input into the decision making process for the Government, it will still be influential in its actions. Primarily the group will conduct a number of meetings in the time space between June and November, along with publishing a number of papers which will directly address issues faced by the Government. The product of the meetings and conclusions of the meetings will be used as references for any decisions made.

Statements made by Bill English and Peter Dunne indicate that the Tax Working Group’s primary concern will center in the medium-term decisions facing the Government. Ideally the group is aimed at providing unbiased pros and cons research into key issues. The group is headed by Victoria University’s Centre for Accounting, Governance and Taxation Research and is comprised of academics, private sector figures, along with representatives from both the Treasury and Inland Revenue.

According to the financial statements released by the New Zealand Government under the Public Finance Act 1989, the government is operating with a much lower monetary amount than previously predicted. Chief blame behind this rest with the lowered tax revenue experienced by the government, with figures of $29,344 million as opposed to the December forecast of $30,529 million. Similarly the Crown’s core expenses were almost one billion dollars higher than expected.

ACC contributed a nearly $2.4 billion dollar extra loss to the government budget, on top of the tax lowering. Another serious contributing factor is some “unforeseen losses” with Mortgage Backed Securities that the Government held.

At the initial release of these figures on Friday 20th of February, when asked about upcoming tax cuts and their effects on the Government budget, John Key is said to made furlong and melancholy replies. The gloomier than expected numbers can easily attributed to this, although no committed word was given as to the fate of the promised tax cuts.

In the face of the apparently grim Treasury report received by John Key and his incoming Minister of Finance, Bill English, remained optimistic and stood behind the proposed tax cut policy of the National Party. While neither man was willing to comment on the exact figures and information provided by the Treasury, they did concede that the situation was less than perfect. John Key went on to say that the tax cuts were affordable and according to the information provided, could not come at a better time for New Zealand. It is expected that the exact details of the discussion and its effect on personal tax cuts will be detailed in the new government’s bi-annual economic forecast.

The discussion between the incoming and outgoing government figures is thought to have centered largely around the Treasury update released the day before the November 8th election. The report predicts lower commodity prices and falling house values, inline with other economic predictions. The report predicts a growth rate of 1.3% until 2010 and unemployment rising to as high as 5.7%. Despite this John Key was quoted as saying that while the Treasury was pessimistic it was not Armageddon.

In the face of the apparently grim Treasury report received by John Key and his incoming Minister of Finance, Bill English, remained optimistic and stood behind the proposed tax cut policy of the National Party. While neither man was willing to comment on the exact figures and information provided by the Treasury, they did concede that the situation was less than perfect. John Key went on to say that the tax cuts were affordable and according to the information provided, could not come at a better time for New Zealand. It is expected that the exact details of the discussion and its effect on personal tax cuts will be detailed in the new government’s bi-annual economic forecast.

The discussion between the incoming and outgoing government figures is thought to have centered largely around the Treasury update released the day before the November 8th election. The report predicts lower commodity prices and falling house values, inline with other economic predictions. The report predicts a growth rate of 1.3% until 2010 and unemployment rising to as high as 5.7%. Despite this John Key was quoted as saying that while the Treasury was pessimistic it was not Armageddon.

Of the most interest in the new set of details is discussion on the pricing of the so called New Zealand Wholesale Funding Guarantee Facility, which can be read here. It seems that the Wholesale Guarantee Scheme has been priced above that of the Australian and American equivalent, although it is below that of Canada.

The fees that are charged on the use of this facility vary depending on the term of issue and the credit rating of the issuer. Issuers with a credit rating of AA- and above, A- to A+ or BBB- to BBB+, will yield a fee of 85, 145 and 195 basis points, respectively, if it is on a one year term. On a two year term the fees will be 140, 200 and 250, across the same groups. The pricing indicated would appear to be fluid, according to the papers released by the treasury, and can be adjusted if needed, by the Secretary to the Treasury.
The Wholesale Funding Guarantee Facility is not a permanent fixture in the New Zealand financial scene. The released guidelines say that if market conditions were to return to “relative normality” the scheme could be withdrawn for new issues.

As the government aims for banks to evaluate the need of the Wholesale Funding Guarantee Facility before participating in it, it has been confirmed to be an opt-in scheme, with no banks or facilities required to participate.

Figures released on the 26th of September show a GDP shrink of 0.2 percent for the June quarter of 2008. Combined with the March quarter drop of 0.3 percent, the technical definition for an economy in recession, two consecutive quarters of economic falls, has been met.

The cause of the second quarter of contractions has been pinned to tightened credit conditions, lowered domestic spending and a draught affected agricultural industry. It has been forecast by analysts that these conditions will continue for at least the following September quarter. A recent report by the New Zealand Institute of Economic Research forecasts the September fall to be 0.1 percent. Similar reports from the Reserve Bank predict a drop of 0.3 percent, while the Treasury has merely stated that they are “not ruling out a further small fall”.