by Nick Clark, Manager General Policy
Government finances better than expected
The Government’s accounts for the last financial year are out and they show a lower deficit, higher tax take, and lower net debt than forecast in Budget 2021.
Core Crown tax revenue for the year ended 30 June 2021 amounted to $97.98 billion, $6.44 billion higher than expected in the Budget. Tax revenue was up across the board, including from company tax, GST, and source deductions (PAYE).
Meanwhile, core Crown expenses were $107.76 billion, $2.98 billion lower than expected. There was more spending on health and transport and less spending on social welfare (thanks to the end of wage subsidies) and interest expenses.
The operating balance excluding gains and losses (OBEGAL) was $4.56 billion, $10.57 billion smaller than expected. Big increases in asset valuations drove a large unadjusted operating surplus of $16.16 billion, but OBEGAL is the preferred measure for government surplus or deficit.
Net core Crown debt on 30 June 2021 was $102.08 billion, $11.58 billion less than expected in the Budget. This was 30.1% of GDP.
The 2020/21 financial year has ‘been and gone’ with the fiscal impacts from elevated alert level restrictions a story for 2021/22. Expenses will be higher, thanks to response costs and resuscitated support measures (e.g., the wage subsidy), while tax revenue will be lower due to the hit to economic activity. The better than expected results for 2020/21 and unspent money from the COVID-19 Recovery Fund should provide some fiscal headroom.
We’ll know more next month when Treasury releases the interim financial statements for the first three months of 2021/22 and then in December when it releases the Half Year Economic & Fiscal Update.
Food prices up
Food price inflation accelerated to 4.0% for the year to September, according to Statistics NZ’s monthly Food Price Index
On a monthly basis, comparing September 2021 with August 2021, food prices were up 0.5% (or 0.9% when seasonally adjusted).
- Fruit and vegetable prices were down 1.5% (but up 2.3% when seasonally-adjusted), with fruit up 0.9% and vegetables down 2.9%;
- Meat, poultry, and fish prices were up 1.8%, with beef & veal up 1.6% and mutton, lamb & hogget down 1.0%; and
- Grocery foods were up 0.8%, with bread & cereals up 0.3% and milk, cheese & eggs up 1.6%.
Contributing to the annual increase of 4.0% were:
- Fruit and vegetable prices were up 9.3%, with fruit up 4.2% and vegetables up 12.2%;
- Meat, poultry, and fish prices were up 3.2%, with beef & veal unchanged and mutton, lamb & hogget up 8.9%; and
- Grocery foods were up 2.9%, with bread & cereals up 1.8% and milk, cheese & eggs up 7.1%.
Next week sees the Consumer Price Index for the September quarter. It’s likely annual inflation will come in well over 4.0%, perhaps as high as 4.5%.
Retail sales edge up but remain weak
Retail card spending increased 0.9% in September compared with August, according to Statistics NZ’s monthly Electronic Card Transactions.
The small increase came as COVID-19 alert levels eased from level 3 to level 2, except in Auckland.
There were strong month-on-month increases for vehicles (up 24.9%) and durables, such as furniture, hardware, and appliances (up 17.5%). But there were declines for apparel (down 10.4%) and consumables, such as groceries and liquor (down 3.3%).
Compared to the same month last year retail sales were down 14.9%. Sales were down across all sectors, except consumables (up 7.1%). The drops were particularly large for apparel (down 43.4%) and hospitality (down 42.8%).
Traffic recovering
ANZ’s monthly Truckometer has shown a lift in traffic volumes in September after the easing of August’s national lockdown restrictions.
The Light Traffic Index lifted 6.4% in September compared to August, while the Heavy Traffic Index was up 13.4%. However, both indexes remain well below their July 2021 levels – light vehicles down 24.1% and heavy vehicles down 7.3%, reflecting ongoing restrictions in Auckland.
Traffic volumes will not fully recover until Auckland’s restrictions (and now Waikato’s and Northland’s) are eased to match those in the rest of the country.
Businesses resilient
Business confidence has slipped but own activity jumped, according to the preliminary results from ANZ’s October Business Outlook Survey.
A net 8.6% of businesses expected economic conditions to worsen over the coming year, down 1.4 points on September’s final results. Despite being in their second month of lockdown restrictions, Auckland businesses were significantly less pessimistic than those in the rest of the country (-2.5% versus -11.8%).
Meanwhile, a net 26.2% of businesses expected their own activity to increase over the coming year, up 8.0 points from September. Again, Auckland businesses were significantly more optimistic than those in the rest of the country (+30.9% versus +23.7%). Businesses there will be expecting their activity to bounce back once restrictions are relaxed.
The final results for October will be released at the end of the month.
Is the housing market slowing?
House prices fell in September compared to August and the annual growth rate slowed, according to the Real Estate Institute of NZ’s monthly Residential Property Statistics.
Comparing September 2021 with August 2021, the median house price fell 6.5% to $795,000. On an annual basis, comparing September 2021 with September 2020, the median house price was up 15.4%. This was slowdown from the 25.5% increase when comparing August 2021 with August 2020.
Auckland’s year-on-year increase was a still healthy 20.4% and there were some big regional increases, with Manawatu-Wanganui up 35.4%, Hawkes Bay up 31.6%, and Canterbury up 31.0%. The smallest increases were in Gisborne (up 9.8%), West Coast (up 10.0%), and Taranaki (up 10.3%).
Sales volumes continued to weaken, with September 2021’s sales down 9.7% compared to August 2021 and also down 37.9% compared to September 2020. Mainly this reflects lower listings, i.e., fewer houses on the market. Current COVID-19 restrictions have played a part in this but the trend was evident even before they were imposed in mid-August.
Median days to sell increased to 37 in September 2021, up 5 days from September 2020.
Travel and migration drop
The number of people crossing New Zealand’s border dropped in August 2021 with the pause of quarantine-free travel with Australia and the Cook Islands, according to Statistics NZ’s monthly International Travel Statistics.
There were 41,300 border crossings in August 2021, with 18,800 arrivals and 22,500 departures. They are back down to levels prior to April when the bubbles were opened.
Turning to migration, in August 2021 there were 1,900 migrant arrivals and 1,600 migrant departures. Both were well down from August 2020’s already weak levels. For the year ended August 2021 there were 48,000 migrant arrivals and 45,700 migrant departures resulting in an annual net migration gain of 2,400.
NIWA Soil Moisture Data
NIWA’s latest soil moisture maps (as at 9am Thursday 14 October) continue to show most of the country’s soils with about average or wetter than usual moisture levels for this time of year. Kaipara-Rodney, East Cape, Whanganui-Rangitikei, Marlborough-Kaikoura, Christchurch, and Central Otago-Dunedin are significantly wetter than usual. There are only a few isolated pockets of dryer than usual areas, such as in the Bay of Islands.
Exchange Rates
The NZ Dollar was again a little stronger this week, up a further 0.4% against the Trade Weighted Index. It was up against all our major trading partner currencies, except the Australian Dollar.
Source: Reserve Bank of NZ
Wholesale Interest Rates
Over the course of the week, the yield for the 90 Day Bank Bill was up three points to 0.68%, while the 10 year Government Bond yield rose 10 points to 2.10%.
The Reserve Bank will next review monetary policy settings (including the OCR) on 24 November.
| This Week (14/10/21) | Last Week (7/10/21) | Last Month (14/9/21) | Last Year (14/10/20) | |
| OCR | 0.50% | 0.50% | 0.25% | 0.25% |
| 90 Day Bank Bill | 0.68% | 0.65% | 0.53% | 0.27% |
| 10 Year Government Bond | 2.10% | 2.00% | 1.87% | 0.58% |
Source: Reserve Bank of NZ