Hon Dr Michael Cullen
Minister of Finance

11 October 2006 Media Statement

Financial statements consistent with fiscal strategy

The financial statements for the fiscal year ended June 30 underscore the government's progress in building a robust fiscal platform to meet the challenges of today and over the long term, Finance Minister Michael Cullen said today.

"The government’s strategy is to strengthen the underlying fiscal position in order to better position society to cope with known future challenges, such as the anticipated ageing in the profile of our population as this century progresses.

"The financial statements released today show our prudent fiscal management is paying dividends.

"It is particularly pleasing that on the cusp of entering that period in our history when the profile of our population significantly changes that we do so with the government’s gross debt level being close to our long term target and the government’s net financial asset position strengthening further thanks to the build-up in the assets of the New Zealand Superannuation Fund," Dr Cullen said.

The statements show gross sovereign-issued debt easing to 22.6 per cent of GDP at June 30, down from 23.3 per cent a year earlier, in line with the government’s objective to reduce debt to around 20 per cent of GDP over the long term. The government’s net financial asset position strengthened, standing equivalent to 1.3 per cent of GDP, the first set of full-year accounts in which a government in New Zealand has recorded a positive net financial asset position.

"The government has achieved these positive financial results while at the same time significantly lifting New Zealand’s future prospects with policies and investments designed to raise our economic potential, enhance the security and well-being of working families and strengthen our sense of national identity.

"With persistent consumer price inflation an issue across the world, in large part due to the significant rise in global energy prices in the past year or so, the full-year accounts also underline the benefit of the government adopting a neutral fiscal stance in the 12 months just ended.

"The country has learned through bitter historic experience that fiscal policy does not exist in isolation of the wider macroeconomic environment and that responsible governments must be sensitive to ensure that their fiscal stance does not complicate the job of the central bank," Dr Cullen said.

"Recent comments by Standard & Poor's certainly reinforce the wisdom of our fiscal strategy. It stressed strongly that our government’s strong fiscal profile was a very important counter weight to the country’s current account deficit.

"The accounts show that while the economy has indeed been slowing, it was more resilient in the first six months of 2006 than many had anticipated at the start of the year.

"As a result the government's accounts are in a healthier position than expected at Budget time. However, the additional cash surplus is not confirmation in itself of any permanent strengthening in the government's fiscal position.

"It would be most unwise to make long term decisions on the basis of one set of figures. This government is always mindful of ratings agencies’ consistent warnings that any unjustified weakening in the fiscal position would jeopardise our credit rating to the detriment of households’ and businesses’ mortgage lending costs.

"It is also important to remember this is just a snap shot of the government's finances. We will have a better idea of the path forward when Treasury publishes its next set of economic and fiscal forecasts in late December.

"This is a result we can be proud of. It is important that we maintain our prudent fiscal approach so that we can continue to make sound decisions and investments to further enhance economic growth and prosperity into the future," Dr Cullen concluded.

The statements are available at: http://www.treasury.govt.nz/financialstatements/year/jun06/

ENDS

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