The New Zealand Government ran an operating deficit of $9.4 billion in the financial year ended June 2023, as corporate tax revenue came in $2.4 billion below forecast.
Treasury had predicted a deficit of just under $7 billion but, as previously reported, revenue was 1.6% lower than expected — largely due to lower corporate tax revenue.
Total revenue was $153 billion, up $11.4 billion from the prior year, but was $2.5 billion below the forecasts included in Budget 2023.
The deficit was added to net debt, which finished the year at $71.4 billion or 18% of gross domestic product, roughly as forecast. Net worth increased by $17.2 billion to $191.5 billion.
Treasury said the financial results were impacted by high inflation and rising interest rates.
“This has supported strong wage growth and private consumption through the year and led to steady growth in the nominal economy, with nominal GDP increasing 8.9%”.
“Tax revenue has grown on the back of growth in the economy, however at a slightly slower pace reflecting the impact of weaker business profits”.
Inflation had also contributed to a growth in expenses, with a large part of the Budget 2022 package funding cost pressures and cost-of-living related policy initiatives.
Higher interest rates had a net negative impact on the Government’s fiscal result, with the increase in financing costs exceeding the increase in interest revenue.
Since the accounts are being released in the election campaign period, the minister of finance didn’t speak at the lockup. However, the minister did provide a written statement, as usual.
In it, Grant Robertson said the financial year had been a challenging one for New Zealand and the Government’s accounts.
Supporting the economy, with spending, had kept unemployment well below the long-term average and helped gross domestic product grow almost 8% since the start of the pandemic.
“The global economy continues to experience the reverberations from the 1-in-100 year economic shocks from the pandemic while New Zealand also experienced its second largest natural disaster following the impact of flooding and Cyclone Gabrielle,” he said.
Robertson said the government had found $4 billion of savings in response to the weaker tax revenue which ensured the country remained on a “sustainable fiscal path”.
93 Comments
The alternative headline could also read "The private sector adds an additional $9 billion to its net savings"
https://theconversation.com/how-government-deficits-fund-private-saving…
Its straight forward accounting as all the financial flows between the sectors of the economy must net to zero. A deficit in one sector must have an equal surplus in the others.
The primary use of fiat is a method of exchange in a marketplace. People are confusing that with being a store of wealth.
Bitcoin is another form of a store of wealth. Incredibly flawed as a currency, like any finite marker, but so long as there's a willing population of collectors it's possibly an option for someone who's not interested in any alternative.
Bitcoin is another form of a store of wealth. Incredibly flawed as a currency,
Logically incoherent. If store of wealth is a property of money, that would means BTC is a superior currency.
Your logical sequence is like saying. WD-40 is a lubricant that enables rust prevention. Terrible for use cases in the metal industries.
If someone had their shelter sorted, and was making a large net income and wanted to hedge a bet, then they could probably to worse than Bitcoin I guess.
Although most of the 200 million Bitcoin collectors haven't made very good returns, so the benefits aren't universally felt. And those collectors are really depending on a large influx of new participants to get the ROI they were hoping for.
Stored wealth generally doesn't get used as currency, it just gets hoarded. Not conducive to an active economy, because you want money to be used and circulated, not stored.
ah yes that old Keynesian adage that your iceblock must be melting in order for me to want to eat it. 2% 5% 10% per year, please, every 10 years please steal my time and value so I don’t become a saver, oh sorry I mean “HOARDER”
it’s a joke
You can just look it up here - June 2022 to June 2023 household bank deposits went up by $13bn - about $4bn more than the deficit. The difference can be explained by net lending by banks (makes the difference bigger) and Treasury swapping some of the dollars created for Govt bonds (makes the difference smaller).
Deposits went up by $13 billion ...Net lending went up by 14 billion ... roughly..
My understanding is that a Banks balance sheet can only increase by its own credit creation process ( deposits/loans )... as part of the private sector Banking system ... and Govt deficit has nothing to do with that ?
Why would the Treasury swap dollars ( currency ? ) for Bonds ?
If Govt spends $10bn more than it taxes then bank deposits go up by $10bn.
If Govt sells $5bn of bonds then bank deposits go down by $5bn and private sector holdings of bonds go up up by $5bn (a swap of debt in dollars for debt in bonds).
Net impact of the above would be an increase in govt debt of $10bn and bank deposits up by $5bn.
It's the basics to be honest!
When Govt spends $10M, institutional settlement account balances go up by $10M creating a liability (debt). The Crown pays interest on settlement account balances at OCR.
If Govt then sells a $10M Govt Bond, the settlement account balance of the purchasing bank reduces by $10M and they take ownership of $10M of Govt debt in the form of a Bond. This is a DEBT SWAP - total Govt debt does not change.
Thus, Govt goes into debt when it adds money into the banking system (increasing cash deposits). When Govt sells bonds - it swaps debt in the form of settlement account cash for a debt in the form of a bond (reducing cash deposits). When Govt taxes, it reduces the amount of money in the settlement account system.
Take a look at the diagram on page 5 of the Crown Accounts yesterday - you can see the make-up of Govt debt (including bonds and settlement accounts balances).
Jfoe,
Explain how private sector deposits increase, as a result of the govt using its crown settlement acct ?
Crown settlement acct is a kinda odraft facility..... a short term liquidity thing.
Govt has to borrow from private sector to finance longer term deficits.
I'm pretty sure U are wrong in ur assertion govt deficits increase private sector deposits...IE increases money supply.
Crown Settlement Account is basically a record of (tax received + bond sales) - money spent by Govt. The CSA is worth zero to the Crown overall as it is an asset of treasury and a liability or RBNZ (the entirely Govt owned bank)
When Govt spends, RBNZ mark down the Crown Settlement Account and mark up the Settlement Account of the intended recipient's commercial bank (e.g. Westpac). Westpac then credit the recipient's bank account.
Look at what is happening here:
- Crown Settlement Account balance is reduced (makes zero difference to Crown net debt as it reduces assets of Govt and increases liability of RBNZ)
- Westpac Settlement Account Balance is increased (this increases Govt debt)
- Recipient's bank account is credited - adding $$$ to NZ bank deposits (money supply)
- Now, if that recipient then decided to purchase a Govt bond, this whole process would be reversed but the individual would now be the proud holder of a Govt bond!
There is plenty that I don't know, but I know I'm right that Govt deficit spending increases private bank deposits. It's an accounting certainty.
Jfoe,
Like I said this is incorrect....or maybe partly correct..... (remember we are talking about ur assertion that $9billion govt deficit results in $9 billion of new ,private sector, bank deposits)
What you describe is true IF the Govt monetized it's debt....which it doesn't.
In reality it really does borrow money from the private sector, ....tendering bonds, with with selected dealers acting as intermediaries.
I'm guessing U have learnt about the monetary system thru the lens of MMT..... which I think will slowly loose favour, just as moneterism did...and yet they both offer some good ideas.
Govt creates monetised debt when it spends. Monetised debt is swapped for Bonds . I didn't learn this from 'MMT', I learned it from working in public / private finance on and off for decades. I know how it works. So, do RBNZ, here's how they describe it in their helpful note [itallics mine]...
'Only transactions involving the government and the Reserve Bank can change the settlement cash level [remember settlement cash = debt]. The government’s taxation and borrowing reduces the settlement cash level, whereas government spending and paying off debt increases the settlement cash level [increases the debt]. The government’s account at the Reserve Bank is known as the Crown settlement account, and is not technically included in the settlement cash level [because it is worthless!].'
Jfoe, " Govt creates monetized debt when it spends. Monetized debt is swapped for bonds" .... I'm not sure what you mean ?
I think you are taking that quoted "helpful note" text out of context... The whole settlement acct system is for settling accts. Its an overnight facility... for reconciling the days transactions.... Beyond that , the Govt has to "borrow". ( Unless we have a crisis and a central Bank Monetizes debt by directly buying Bonds from the Govt, and paying for them with outside money/base money ).
Its the fact that the crown settlement acct is not technically part of the system ... which causes the settlement system cash levels to change..
It is NOT the Govt monetizing debt ..as you say.
Anyway...we agree to differ.
On page 4 of your link there is this :
Only transactions involving the government and the Reserve Bank can change the settlement cash level. The government’s taxation and borrowing reduces the settlement cash level, whereas government spending and paying off debt increases the settlement cash level. The government’s account at the Reserve Bank is known as the Crown settlement account, and is not technically included in the settlement cash level.
For example, when John, a customer of Bank A, pays tax, Bank A settles the tax payment by transferring funds from Bank A’s ESAS account to the Crown settlement account. This reduces the settlement cash level.3
As another example, let’s say KiwiSaver Fund A owns a government bond which is about to mature — i.e. it is time for the government to pay back some of its debt. KiwiSaver Fund A is a customer of Bank A. When the bond is paid back, the government transfers settlement cash from the Crown settlement account to Bank A’s ESAS account, increasing the settlement cash level and base money. Bank A gives KiwiSaver Fund A a bank deposit of the same amount, causing broad money to increase.
Interesting conversation Roelof and Jfoe.
I tend to agree what Jfoe says here;this matches what RBNZ says bout money creation in NZ , in simple terms
The whole settlement acct system is for settling accts. Its an overnight facility... for reconciling the days transactions.... Beyond that , the Govt has to "borrow".
^^ This is wrong We have to understand that to 'borrow' from private sector, there should be 'settlement balance' - which is created by Govt spending. So just following this sequence, govt cannot borrow more than what it has spent.
And we can't just say 'Settlement balance' just as 'overnight facility'. Its of the order of $50 billion now . And I am pretty sure there is a different 'overnight lending' channel from RBNZ - where the banks have to pay a premium interest rate more than OCR.
Standard and Poor's state, Where deposits come from.
"Governments also create deposits when they run budget deficits because they are putting more money into the public's bank accounts than they are taking out. This net flow creates new deposits in the banking system, which has its counterpart on the bank's balance sheet as an increase in reserves". https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/programs/…
"If Govt sells $5bn of bonds then bank deposits go down by $5bn and private sector holdings of bonds go up up by $5bn (a swap of debt in dollars for debt in bonds)."
The Govt does does not sit on that money.... It flows back into the economy... After the "snapshot" of the transaction you describe..... The Govt spends that money back into the private sector.. Private Sector deposits remain largely unchanged as a result.....once that money is spent....which can happen very quickly.
Thats my view.
Overseas investors and currency traders etc can take ownership of NZ dollars and Govt bonds (which are basically huge dollar notes that Govt pays interest on). But those dollars are logged on the NZ books. For example, we have about $34bn of NZD in bank accounts owned by overseas businesses and people (see here) and just over $78bn of Govt bonds owned by overseas investors (see here). Overseas savings in NZD like this obviously go up when we run a trade deficit.
TL...
How is this any different to the private sectors debt creation ? deposit vs a debt.
One mans debt ( spending ) becomes another mans income..... One Mans liability is another mans asset.
You make it sound like its all ok... that its some kind of wealth creating machine ( Govt deficit spending ) ???
For example, that it does not matter how expensive housing is because the net savings of deposit holders is increasing....as it all nets to zero.
OF course ..this is nonsense ... It does matter that housing is affordable/unaffordable. It does matter that a Home owner might be struggling to pay the mortgage...etc
History shows that MMT is a variation of a theme around the idea that we can get something for nothing by simply "printing money"....
Of course history shows the end result of that. There has never been a "safe pair of hands" to manage deficit spending and Money printing . The end result is kinda predictable.... thou the timing of it is difficult to foresee.
I thought the article u linked to was kinda silly.. The flippant idea that Govt debt does not really matter because a Govt can simply print money...( If only it were that simple.!! ).... Deleveraging of debt is a very tricky thing.
Taxation....Govt deficit spending....Money creation... are all ways to redistribute wealth.... ALL are forms of TAX... on the present and on the future...
ALL deficit spending , whether private sector or Govt, brings tomorrows demand/spending forward to today..... ( It might be better for the Planet if we simply lived within our means )
kinda like an economic heroin fix... ( And there is nothing magical about the temporary high that the heroin fix stimulus gives ).
thats my view...
Correct. Roleof, have a watch of this for reference of historical global world order and hence reserve currencies:
Treasury reports a $9.4 billion Crown deficit in the 2023 financial year
Robertson said the government had found $4 billion of savings in response to the weaker tax revenue...
Let me get this straight, A loss of $9.4bn less savings of $4bn means a $5.4bn hole...well done Robo, you are certainly in it!!
All of a sudden $4 billion is discovered in savings. All of a sudden crime levels are unacceptable. All of a sudden more doctors and nurses are needed. There has been in the last six months more all of a suddens than in the last six years. Labour look like a badly behaved child all of a sudden being very good, simply because something is wanted.
Must be your confirmation bias.
For everyone else govt has been struggling with some issues and made headway with others.
All in all it's a very mixed bag but sadly the other lot will fare much worse following in UK's footsteps of corporate welfare and public spending cuts.
That is incorrect NightStalker. Up until a few months the current Government was openly denying (see news articles please for record) that there was any problem with 1) health care 2) crime 3) education 4) mental health and so on. At the moment they are denying there is any problem with brain drain and with the economy.
GST receipts have already fallen, as fast as an NZ First candidate down the rabbit hole
https://www.nzherald.co.nz/nz/politics/election-2023-who-might-become-n…
Businesses paid 10.7 per cent less tax than expected in the 11 months to May as the economy cooled, according to the Government’s latest accounts.
It often makes me laugh when people say "our houses" treadlightly. They are in fact taxpayer owned houses. And in NZ currently, I think roughly 50% of NZ'rs receive more in transfers from Government than they pay in income taxes. So they are not net income taxpayers. Therefore, the houses are not "theirs". And by the way, there are reasonable arguments that the Government should not be in the business of owning houses. Maybe it is a good idea to sell all of them, close Housing Corp down, make all the staff redundant, save $100's of millions and put $100's of millions in the bank. What do you think?
Where do taxpayers get their money from?
Two places:
- Banks print more money to lend to people than they take back in loan repayments
- Govt prints more money than it taxes
Then what?
- That newly printed money enters the economy and circulates briefly before it is vaccuumed up by rich people who own revenue-gathering assets like rentals, shares in companies etc
- Govt has to tax some of this money back and give it to people who have given everything they earn to foodstuffs and the landlord (and still can't make ends meet)
What can we do to make this better?
- Govt could build loads of houses so that peoples' earnings circulate in the economy for longer without getting trapped in the bank accounts of landlords that collect rent for a living
- Recognise that our tax system is supposed to stop money gathering in the treasure chests of rich folk and get back to high income taxes on high earners, estate taxes, and capital gains taxes (as god intended)
Taxes like death duties, and extortionate marginal tax rates make the 'rich' (whoever they are) move overseas. It's all been done before...in the 1980's. Rich people, and those being gouged by extortionate marginal tax rates decamped to QLD. And stayed there. And if it's so easy to get 'rich', why aren't you doing it?
Who said it was easy to get rich?
However one way to do it with no effort at all is by inheriting it. But that can only happen if you are lucky, and there are no death duties.
Lots of people are currently leaving NZ. Why should we care about the rich leaving more than the others?
The issue with this theory is that there will be a limitless amount of places for rich people to move to. Eventually civil unrest grows as wealth disparity grows historically, there simply can't be never-ending drops in income tax rates, company tax rates etc with the threat that they will 'go elsewhere'. We have already seen the top tax bracket half in the 80's from 66% and be tweaked in the 30-40% range over time ever since, yet there were still large numbers of the then boomers aspiring to be lawyers, doctors and other highly skilled professionals regardless. Now we have all off our doctors leaving overseas after university. The issue today isn't that we are being taxed too much, it is that there are so many more options for people to simply flee to if they choose to if they see any hint of having to pay more tax, work longer to get somewhere in an industry to reach a level they wish to attain etc. Citizens don't have as much of a sense of duty to NZ and giving back to the community, wanting only to maximise their profits and earnings, and the thought of the government getting a dollar more out of them is seen as simply atrocious. This is the longest period we have had without significant international conflict that has effected NZ in a large way like the last world war. Perhaps a decent recession will remind us all to help each other, pay our taxes and give something back to the community on a mass scale.
The other key issue is that while tax on work still pays most of the bills, most of the benefit has been flowing to assets that are comparatively untaxed yet important to the lives of those doing the work. We cannot simply keep living off the wealth of those following and expect them to stick around.
They are going to allow private owners to sell their houses to foreign buyers and so how does that make us any better off over the long term? it will tend to reduce the supply of houses to NZ buyers and increase prices through the entire housing market and any capital gain that they make when they sell will be a financial loss to our economy.
Think there needs to be here some differentiation between a house and a home. Someone who sells their home, and doesn’t buy another one no longer owns a roof over their head. That is a situation that is completely the opposite to what the vast majority of households in New Zealand aspire to, I would suggest. But I get the thrust. Obviously you can’t uplift, export and sell NZ’s housing stock overseas like some commodity. So what has happened and likely will continue, is to bring the market to NZ, that is immigration.
My business is doing nothing different to anything we have ever done. Out tax bill is largely unchanged, GST bill is probably higher mostly due to lowering stock levels as fast as we can go, so a ton less customs GST to claim back.
Reading the property investors forums, Im pretty sure you could find a plethora of evasion amongst that group.
Fear not, tax revenue will bounce back once all the NZ based agents and employers declare their income from selling VISA's:
...each had paid about $20,000 for their visas...
Now, imagine instead if INZ had sold them for 20k each * 100,000 = decline in government revenue sorted.
Alcohol has been that way for years. I recall 15 years ago some mates came over from Australia. Fresh off the plane, they ducked down to Supermarket to grab some beers and were shocked. I believe at the time in NZ it was $30 for a 24 pack of Export/Speights and they were paying $30+ for a 12 pack in Australia.
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