Finance Minister Grant Robertson today unveiled a $9.3 billion surprise, revealing the government’s books were nearly $10 billion closer to surplus than expected in May, helped by a tax take that topped $100 billion for the first time.
The bonus was partly due to a good year for corporate profits, with companies paying 26.2% more tax on profits than last year, an increase of $4.1 billion.
Workers also had a good year, as rising wages and low unemployment pushed up personal tax levies by 11.2%, or about $4.3 billion.
Robertson has been candid about whether he will spend his surprise $9.3 billion on tax cuts or new spending in the election year.
“Whether it’s tax cuts or whatever — it’s already been banked, accounted for, and we’ve moved on,” Robertson said.
“I will take a balanced and cautious approach.”
In the May budget, the Treasury estimated that the government would run a deficit of $19 billion (measured by the operating balance before gains and losses) as Covid wreaked havoc on the government’s books.
In fact, the deficit was $9.3 billion, spending was lower and revenue was higher.
The figure accelerates the government’s trajectory towards surplus, currently forecast at $2.6 billion in 2025 – although a looming international recession could sabotage those plans.
Expenses also increased compared to last year, but less than expected. Core Crown spending rose $125.6 billion from $107.7 billion last year, but $2.8 billion less than expected.
Robertson swept the National Party and companies unveiling the numbers.
He took time in his speech to ‘slam’ the National Party for criticizing the Covid spending it once supported, and he made a veiled reference to the NZ Herald’s Mood of the Boardroom survey, noting that if there is a certain ‘mood’ polls that say one thing, ‘corporate earnings tell another story.
Robertson ended his speech with another dig at the National.
“Now is not the time to waste it on tax cuts for the wealthiest New Zealanders and property speculators,” he said, referring to National’s tax cut policy.
Robertson was more elusive about whether the government itself would promise targeted tax cuts for middle- and low-income earners. He suggested that might not come in the 2023 budget, but Labor might adopt such a policy in the election next year.
“We won’t be making any major tax changes this quarter,” Robertson said.
He said each party would have an income policy at the election, but would not disclose Labor’s.
Anyone thinking about significant changes to the tax system needs to be able to make it add up,” Robertson said.
The government books were a true best of times, worst of times affair, with the books having largely survived the worst of the Covid-19 pandemic, but still showing a large deficit and mounting debt.
Net debt was 17.2% of GDP, or $61.8 billion, up slightly from the $62.1 billion or 16.9% of GDP projected in the budget.
The government earned $42.4 billion from payroll deductions, taxes paid by ordinary earners, up $4.3 billion from last year.
Corporate taxes rose to $19.9 billion from $15.8 billion last year, an increase of $4.1 billion.
Total tax revenue reached $107.8 billion, up $97.3 billion from last year.
Robertson announced that the fiscal policy statement, when he announces how much new money will be spent in the 2023 budget, will be announced on December 14 this year.
He pointed to a tight 2023 budget, with fiscal policy dubbed “cutting our fabric.”