The Government’s financial accounts for the three months ended 30 September were better than expected from an operating point of view. However the post-election government, whether it is National or Labour-led, won’t have a lot of money to play with.

The Governments actual OBEGAL (operating balance before investment gains and losses) was $891 million for the three months ended September compared with a forecast surplus of $424 million for the same period. This also compares with an actual surplus of $1,522 million for the corresponding period last year.

   An OBEGAL deficit of $64 million is forecast for the June 2009 year compared with an actual surplus of $5,637 million for the June 2008 year and a surplus of $5,860 million for the twelve months ended June 2007.

The basic problem is that social welfare (which includes national superannuation), health and education expenditures are growing more rapidly than tax revenue and these three areas represent around two-thirds of the Crown’s core expenditure.

Core social security and welfare expenditure is expected to have grown from $17.9 billion in the June 2008 year to $19.2 billion in the current year and to $24.1 billion by 2014/15 according to a Treasury model. Health expenditure is projected to increase from $11.3 billion to $12.4 billion to $17.3 billion over the same period. Education expenses are expected to go from $9.6 billion in 2007/08 to $10.7 billion in the current year to $12.9 billion by 2014/15.

Both major political parties are promising fiscal stimulus after the election but they have limited ability to make long-term commitments to additional expenditure because of New Zealand’s aging population.

The huge increase in the 65-plus age group over the next 20 to 30 years, and the associated surge in national superannuation and health expenditure, will be a major constraint on the Government’s fiscal strategy in the years ahead.

Last 5 posts by Brian Gaynor

• Sheppard for Hanover’s board - December 11th, 2008
• Main cause of financial crisis remains depressed - November 27th, 2008
• Retailers - praying for a good Christmas - November 6th, 2008
• Crown IPOs -preferable to political interference in super - October 21st, 2008
• Government guarantees – But what about my finance company? - October 13th, 2008