Daily Briefing, Monday Feb 18, 2008

Firstly we look at the latest crown accounts for an indication of what's happening to government spending and what that might mean for interest rates.
The government's budget surplus slumped in the first half of the financial year. That's mainly because investment losses from the credit crunch hit the bottom line. These are nominal losses because the Cullen Fund still holds its assets and won't be realizing those losses.
But regardless of this short term blip in investment returns, government spending is growing twice as fast as revenue and at least twice as fast as nominal GDP.
The government's so-called operating balance slumped to NZ$815 million in the six months to December 31 from NZ$4.2 billion in the same period a year ago.
That's thanks to a NZ$811 million deterioration in the government's core spending versus taxation equation.
And then there was a nominal NZ$1.8 billion loss on investments in the New Zealand Superannuation fund and other funds such as ACC and the EQC because of global investment market turmoil.
Core government spending grew 10.1%, while core crown revenues rose 5.2%.
One big contributor to revenue growth was Residential Withholding Tax for all those people with money in bank term deposit accounts and finance company debentures.

That number rose 21.9% to $1.27 billion because of higher interest rates and an influx of cash into bank accounts in particular.
Social Security and health spending grew 6% and 9.8% respectively, while transport and communications spending is up 33% -- largely because of extra spending on infrastructure, and economic services rose 66% -- largely because of government contributions to all those Kiwisaver accounts opened in the last year.

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News & Politics

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