Crown operating deficit smaller than forecast

Photo / Mark Mitchell

The New Zealand government had a smaller operating deficit than expected in the first seven months of the financial year as the tax take on investments gained on the rally in stock markets, and higher income workers made up for falling job numbers for the lower paid.

The operating balance before gains and losses (obegal) was a deficit of $2.51 billion in the seven months ended January 31, 19 per cent smaller than forecast in the December half-year economic and fiscal update, according to the Crown's latest accounts.

Core Crown tax revenue was 1.5 per cent ahead of schedule at $33.11 billion with income tax ahead by $225 million and tax from other individuals - which includes on investments - $277 million more than forecast. Government expenses were $282 million behind forecast due to ongoing delays in complex Treaty of Waitangi negotiations.

"Total labour force earnings were in line with forecast, however there was a fall in employment concentrated at the lower end of the income scale," Treasury's chief financial officer Fergus Welsh said in his commentary. "The same amount of income was earned by fewer workers, increasing the average tax rate due to the progressive nature of the personal income tax scale."

Persistently high unemployment has been a bugbear for New Zealand's economy, which is relying on the rebuild in Christchurch to re-ignite economic growth. Economists, government officials and politicians have been sceptical of the official household labour force survey, which puts the jobless rate at 6.9 per cent, saying it is often volatile and hasn't married up with falling benefit numbers and the tax take.

The government is trying to get its books back in the black in the 2014/15 financial year after taking serious hits from the global financial crisis and Christchurch earthquakes. In the update just before Christmas, Treasury forecast an obegal surplus of just $66 million in the 2014/15 financial year, down from the $197 million buffer flagged in the May budget.

Finance Minister Bill English said the figures were "encouraging" but the government is firmly focused on strengthening its balance sheet.

"We will also press ahead with our programme to build a more competitive economy and support the business investment needed for growth and jobs," he said.

The Crown's operating balance was a surplus of $4.17 billion in the seven month period, compared to a forecast deficit of $154 million, due to investment gains in the New Zealand Superannuation Fund and ACC's investment portfolio, and actuarial gains on future liabilities for ACC.

The better than expected tax take from individuals made up for corporate tax revenue, which was 2.7 per cent below forecast at $4.02 billion on an accrual basis.

Goods and Services tax accrued after refunds was 0.6 per cent ahead of expectations at $8.77 billion due to fewer refunds than forecast being claimed. Gross GST was 1.5 per cent below expectations at $14.68 billion, something Treasury estimates might cause a "slightly negative" underlying variance to the annual take.

The government's net debt at $57.3 billion, or 27.5 per cent of GDP, as at Jan. 31 was 0.6 per cent smaller than forecast.