Surplus keeps growing

We’re two thirds through the year and the surplus is already $6.5 billion.

I remain impressed that Treasury put our fully integrated accrued monthly crown accounts. It is no mean task. However as usual their surplus projections are well off.

The forecast last December was for a full year surplus of $6.26 billion. Already it is $6.51 billion with four months to go.

Net core crown debt is a minuscule 3.4% of GDP. This is laudable, but it shows it is ridiculous to suggest capital expenditure should be funded from surpluses rather than debt and depreciation which is standard commercial practice. You only differ from this if you have too high a level of debt.

Of course not all of the surplus is available for tax cuts. Here’s how you make the calculation.

Op Balance – revaluation & accounting changes – surplus from Super Fund – SOE retained surpluses – contributions to Super Fund. Cullen instructs Treasury to also include capital expenditure but that is just to avoid him ever having to give significant tax relief. If you buy a frigate which will last 30 years, you don’t fund it all out of a single year’s operating budget.

You borrow to cover the capital expenditure, and then the interest and the depreciation are charged over the full 30 years. It’s the only sane way to do it.