Is anyone surprised about NZ’s finances?
Yesterday Treasury released its latest financial report. The operating balance deficit was $1.8bn higher than forecast and essentially $3.4 billion worse compared to the prior year.
Government revenues were up from solid wage growth in an inflationary environment - albeit business performance was weaker with company tax receipts falling $1.1bn i.e. 5.9% from last year - "largely [reflecting] weaker business profits".
Willis released a statement saying:
The Crown accounts for the 2023/24 year underscore the need for the Government’s ongoing efforts to restore discipline to public spending
And in the press conference:
“We need to tidy [the finances] up and we need to impose restraint.”
That’s code for expect more slashing of public services, government funding, austerity budgets and privatise like hell.
Earlier in the year, I said the Coalition looked like they were set on killing the golden goose of NZ's economy.
And the reason is because Treasury and economic forecasts up to January 2024 were relatively upbeat and optimistic.
In January, which accounted for performance to November 2023, Treasury said the National Coalition government "inherited finances in better shape than expected."
For example:
“The budget deficit for the five months ended November was $2.8 billion, about $1.1b lower than forecast”
There were major infrastructure programs in play at the time too - Get Wellington moving, cycleways, 3 Waters, building construction: schools, hospitals, homes, the economy was humming along and confidence was reasonably optimistic.
But the government slammed its brakes on nearly all of that with songs about fragility and tough love.
And then they showed their hand:
Slashing jobs in quick succession, halting and reducing government spend and contracts, stopping major infrastructure programs in hospitals, schools, transport, slamming the brakes on social housing construction, cutting funding for domestic violence, Oranga Tamariki providers, food banks, budgeting services, removing disability funding access etc. and bringing Wellington’s economy and the construction industry to a standstill.
Each time they moved, it was like watching a slow motion economic wrecking ball.
The construction industry’s major players pleaded for the government to restart its works. Wellington’s businesses thought asking public servants to return to work would do it.
The thing is - penny wise, pound foolish.
The most basic premise of macroeconomics - and indeed government is - everything is interconnected.
Cutting jobs in quick succession weakens confidence, reduces tax intake, it increases beneficiary expenses.
In lieu of robust economic performance elsewhere, that impacts businesses which rely on consumer confidence, spend and wallets. Many teeter if unsupported and business failures soar.
What does that do?
Less business taxes, more unemployment, less money in the economy - and the cycle is in.
The evidence bears that out -
Data from Centrix shows the number of retail businesses being liquidated was up 36 percent in July, compared to the same time a year earlier.
Hospitality liquidations were up 27 percent..
Retail NZ's recent Retail Radar quarterly survey which showed that 71 percent of members failed to meet sales targets last quarter and 42 percent of retailers were uncertain whether they could survive the next 12 months.
Meanwhile, insolvency firm BWA's report for the second quarter of the year showed 700 insolvencies, the highest in a single quarter since 2016.
Credit bureau Centrix says construction firms currently represent one out of four companies being placed into liquidation and 546 construction firms have been liquidated in the past 12 months.
The latest monthly credit indicator report from Centrix found business credit defaults have risen by 5% across all industries.
The transport and construction industries are being hit particularly hard with business credit defaults soaring 25% and 22% year-on-year respectively.
Construction companies represent 12% or 84,000 of all registered companies across NZ, with 26% of liquidations across all sectors coming from the construction industry.
