The New Zealand government ran an operating deficit of $10.16 billion in the nine months ended March 31, almost 15 per cent worse than forecast in December, as earthquake costs and a weaker than expected economic recovery hit the government's books.
Also, Treasury said GST receipts were lower than expected and the benefits of income tax cuts were not flowing through as expected.
The operation deficit before gains and losses (OBEGAL) was released today as part of the latest accounts to March - the last to be released before the government's budget on May 19.
The Budget is expected to include no additional spending from the previous budget.
The government has signalled its intention is to get its books back to a "meaningful surplus" in 2015/16 to begin paying down debt, by tightening spending on schemes like KiwiSaver and Working for Families.
In a statement just released, Finance Minister Bill English said next week's Budget would "set a credible path back to budget surplus".
"Compared to the December forecasts, the accounts for March were broadly in line with February's results," English said.
"The Budget next week will confirm a very large deficit for the current year, including the immediate costs of rebuilding Christchurch," he said.
"But it will also confirm significant improvements in the fiscal position over the next few years, before we return to surplus and start repaying debt.
To achieve that, the Government has completed a careful and balanced review of its spending priorities, which we will outline in the Budget.
Treasury's Debt Management Office is set to borrow $20 billion in the year to June to cover an expected government OBEGAL deficit of $16 billion for the year, and to cover half of next year's expected $8 billion deficit.
The government faces a potential credit rating downgrade from Standard and Poor's unless it can convince the credit rating agency that it can control its deficit and spending.
Core Crown tax revenue in the nine months to March was 0.1 per cent, or NZ$19 million, above forecast, Treasury said. However, the government's tax package introduced on October 1, where it raised GST to cover for income tax cuts, does not seem to have been as successful as forecast.
"Revenue from source deductions was $242 million (1.6 per cent) higher than forecast because it appears the impact of the October 2010 income tax rate cuts has not been as large as anticipated," Treasury said in its commentary in the financial statements.
This was offset by GST revenue at $263 million (2.6 per cent) below forecast.
"This result reflected underlying weakness in private consumption and residential investment," Treasury said.
Core Crown expenses were $422 million lower than forecast over the nine months to March, Treasury said.
"This was mainly due to underspends across a number of areas, partly offset by a $331 million revision in the estimate of recoveries relating to the deposit guarantee scheme which was not forecast," Treasury said in relation to losses stemming from South Canterbury Finance related party loans last month.
The Earthquake Commission 's (EQC's) estimated net costs for the 22 February earthquake of $1.5 billion were unforecast in December and had adversely impacted the operating balance before gains and losses deficit, which was $1.3, or 14.8 per cent, billion higher than forecast, Treasury said.
"However, when unforecast gains are included, the operating balance deficit was $3.8 billion lower than expected at $3.3 billion. These unforecast gains primarily related to equity investments in the NZS Fund and ACC and actuarial gains on ACC and GSF liabilities," Treasury said.
The government's gross debt was $2.5 billion higher than forecast at $66.7 billion (34.3 per cent of GDP) at March 31.
"March was a record month for bond issuance with $2.8 billion of bonds sold, taking the year-to-date issuance total to $13.9 billion. In response to strong demand from investors, on 30 March the NZDMO increased the 2010/11 bond programme by $1.5 billion (to $15 billion) to allow for continued issuance over the fiscal year," Treasury said.
"Net debt was $174 million lower than forecast at $39.4 billion, or 20.2 per cent of GDP. Despite the higher than expected increase in gross debt, net debt was similar to forecast because the proceeds from the bond issuances were largely invested in financial assets," Treasury said.
INTEREST.CO.NZ/NZ HERALD
Deficit worse than forecast - $10.1b
Photo / Mark Mitchell
