The Ministry of Finance and Economic Management has published the 2014/15 Half Year Economic and Fiscal Update via MFEM website www.mfem.gov.ck.
2014/15 Half year Economic and Fiscal Update (HYEFU)
The 2014/15 HYEFU provides an update of the economic and fiscal forecasts which were recently made at the time of the 2014/15 Budget in October 2014, and provides analysis of the changes in key economic variables and their impact on the fiscal status of Government.
Given the publishing of the 2014/15 Budget in October 2014, there is limited data and information to update, many areas remain largely unchanged from those presented in the 2014/15 Budget.
Estimated Underlying Budget Balance 2014/15
At the time of the 2014/15 Budget (October 2014) the underlying operating balance was forecast to be a small operating surplus of $0.009 million. Due largely to downward revisions in tax revenue, the net operating balance for 2014/15 is expected to be $0.501 million.
Total tax receipts for 2014/15 are expected to be $1.0 million lower than forecast at the time of the 2014/15 Budget due to downward revisions in income, company and import taxes. A large proportion of the revision comes from the writing-off of non-performing assets in the local banking sector, which have negatively affected profitability in the short term. Import duties continue to perform poorly.
There are minor adjustments to other revenue from companies that have has been struck off the registry whilst still holding assets. These deposits can face legal ownership claims for a period of six years. After the six year period no claim can be entertained and the money passes to the Crown. It is anticipated that the Crown will receive approximately $0.500 million from such assets in 2014/15.
Total operating expenditure for 2014/15 remains the same as originally budgeted in the annual budget with no further changes. There may be some opportunities for savings as the year progresses, and there will be some focus on ensuring savings are returned to the budget.
Estimated Underlying Budget Balance 2015/16 to 2017/18
Recent adjustments, along with changes in the economic forecasts, have revised the net underlying operating deficit to $0.316 million in 2015/16, $3.3 million in 2016/17 and $0.602 million deficit in 2017/18.
The development of the 2015/16 Budget will be undertaken in a tight fiscal environment, with limited fiscal space for new initiatives. Therefore, Crown expenditures will be monitored closely.
Future policy objectives will need to be pursued within the established principles in the fiscal responsibility ratios. The ratios establish the long term parameters for fiscal management and ongoing Budget development, with a focus on the level of expenditure on Crown debt. Broadly, the fiscal performance of the Cook Islands against the fiscal responsibility ratios has been good.
Since the 2014/15 Budget, total tourism arrivals for September to November performed as expected however the composition was not in line with forecasts. Tourist arrivals have been revised down from those forecasts at the 2014/15 Budget due to lower than anticipated Australian arrivals.
There has also been a revision to the 2013/14 GDP annual figure due to the inclusion of the March and June quarterly data for 2014. As this does not affect the revenue estimates (the 2014/15 tax receipts were forecast using the 2013/14 estimated revenue), the revision will only have implications for GDP ratios.
Nominal GDP (which includes inflation) is now estimated to have fallen by 2.0 per cent in 2013/14, due to large falls in construction activity and the provision of financial services. This is a downward revision from the forecast of 2.6 per cent growth forecast at the time of the 2014/15 Budget. Nominal growth is expected to be an estimated 4.8 per cent in 2014/15, due largely to increased public sector capital investment.
Apart from the revisions made above, there were limited to no changes to the remaining economic indicators since the publishing of the 2014/15 Budget Estimates.