Businesses paid 10.7 per cent less tax than expected in the 11 months to May as the economy cooled, according to the Government’s latest accounts.
The Crown received $2 billion less in corporate tax than the Treasury forecast at the May Budget.
This contributed towards the Crown’s budget deficit, or operating balance before gains and losses (Obegal), deepening by $2.1b more than expected, to $6.5b.
Finance Minister Grant Robertson pointed out the deficit was $1b shallower than over the same period last year, but conceded: “This year is a difficult one for the global economy, marked by slowing growth and prolonged high inflation”.
National’s finance spokeswoman Nicola Willis said: “The $2 billion shortfall in company tax revenue is an indictment on the Government’s economic management”.
“Businesses are drowning under a tidal wave of new costs, worsening inflation, and these are weighing the economy down.”
While the economic slowdown is largely being orchestrated by the Reserve Bank, which is hiking interest rates to cool inflation, the Crown’s tax take has been undershooting expectations for some time.
Treasury said it expected the Crown’s overall tax take to continue coming in below forecast throughout the year.
While core Crown tax revenue came in 2.1 per cent below forecast (at $103.3b), it still ended up being 4.5 per cent higher than the same period last year.
Businesses paid 7.3 per cent less tax than in the 11 months to May 2022, but individuals paid more.
A strong labour market and high wage growth saw the tax paid on wages and salaries rise by 12.2 per cent.
GST revenue was also up, partly due to inflation causing everything to cost more, and other direct tax revenue rose as interest earned on term deposits increased.
On the other side of the ledger, core Crown expenses came in a tiny 0.2 per cent below what was forecast at the May Budget, at $115.1b.
A couple of the main reasons for the variation included a delay in getting grants for “shovel ready” infrastructure projects out the door, and less demand for the welfare services the Ministry of Social Development issues contracts for, plus the department struggling to find providers to carry out these services.
While spending in most parts of government came in marginally below forecast, core Crown finance costs were $200m above forecast, due to interest rates being higher than expected in May.
The Government’s debt position was a bit worse than expected.
According to the old “net core Crown debt” measure, it came in at 39.5 per cent of gross domestic product (GDP) – as opposed to the forecast 38.4 per cent.
By way of context, this figure had fallen below 20 per cent, pre-Covid.
According to the “net debt” measure the Government now likes to use, it came in at 18.9 per cent of GDP.
Robertson noted net debt was among the lowest in the OECD and well below the Government’s debt ceiling of 30 per cent.
However, Willis said, “Labour’s only plan to get through the cost-of-living crisis was more spending and higher taxes. Now the books are blowing out and Kiwis have nothing to show for it.”
Robertson pointed to some “positive signs” in what he acknowledged was an otherwise challenging environment.
“Unemployment remains at historic lows, and levels of employment are high. The most recent data shows 2.37 million jobs, with an increase in the most recent month of May of over 5400,” he said.
“Inflation appears to have peaked, and business confidence, particularly in their own activity, is starting to improve.”
Jenee Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.