NZ Government banks ponzi growth but won’t invest

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By Leith van Onselen

The New Zealand Treasury yesterday recorded an increased Budget surplus of $1.8 billion in 2015-16 from $414 million in 2014-15, which the National Government vowed to return as tax cuts or use to pay down debt. From Interest.co.nz:

Treasury has unveiled a surplus of NZ$1.8 billion for the just completed financial year to June 30, which was up from NZ$414 million the previous year and up from a forecast of NZ$176 million in Budget 2015.

The result was also more than double the forecast from May 2016 Budget of NZ$668 million as nominal GDP grew by 4.2% in the year to NZ$251.8 billion, helping to power higher than expected income tax and solid GST revenues.

Finance Minister Bill English said the result gave the Government choices about repaying debt and cutting taxes.

“Government surpluses are rising and debt is falling as a percentage of GDP which puts us in a position to be able to make some real choices for New Zealanders,” English says.

“The New Zealand economy has made significant progress over the past eight years. This delivers more jobs and higher incomes for New Zealanders, and also drives a greater tax take to help the Government’s books,” he said…

“If there is any further fiscal headroom, we may have the opportunity to reduce debt faster and as we’ve always said, if economic and fiscal conditions allow, we will begin to reduce income taxes.”

I congratulate the Government for achieving a Budget surplus. However, with New Zealand running a record immigration intake (see below charts), one has to ask why the surplus funds will not be used to expand the country’s economic and social infrastructure?

ScreenHunter_15391 Oct. 11 14.48 ScreenHunter_15392 Oct. 11 14.48
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Without additional public investment, New Zealand residents’ living standards will be eroded as infrastructure and public services fails to keep-up with the population explosion. Kiwis will spend more time stuck in traffic or waiting for a hospital bed, meanwhile well-located housing will become even more expensive.

The below quote from a NZ Herald reader nicely encapsulates the broader issues:

“The Government’s national infrastructure unit recently reported that over the next 30 years our country will face some real challenges with ageing networks. Over the next 10 years, its report estimates around $110 billion will need to be spent on infrastructure…

By deferring the spending on infrastructure and essentially pushing the responsibility onto councils, [PM John Key] is doing to New Zealand what decades of mayor around Auckland did there: allow infrastructure to fall seriously behind population growth.

One day, when we have rolling power outages, drinking water problems, clogged roads, insufficient housing, schools bursting at the seams, crime rising and the health system needing the see the doctor, money will need to be spent in quantities that nobody has been putting aside for it.

They will look back on this political generation as the ones that kept on putting on the pressure through immigration but it never actually increased our capacity to cope. Deferred spending is the next government’s problem after all”.

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High population growth (immigration) without the requisite public investment is a sure-fire recipe for lower living standards for existing New Zealand residents.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.