KEY POINTS:
Carnage in world sharemarkets has taken a $1.8 billion bite out of the Government's accounts for the first three months of the fiscal year.
The operating balance for the three months to September had been forecast to be a surplus of $900 million. Instead it was $800 million in the red, mainly reflecting $1.8 billion in writedowns of the value of investment portfolios held by the New Zealand Superannuation Fund, Accident Compensation Corporation and Earthquake Commission. Between them they have financial assets of some $27 billion.
Finance Minister Michael Cullen said that since the Superannuation Fund had started investing five years ago its rate of return had averaged just over 8 per cent a year.
In addition to portfolio writedowns, there was a paper loss of $400 million from a revaluation upwards of ACC liabilities reflecting a lower discount rate. That will reverse when interest rates rise again.
The operating balance excluding valuation gains and losses (obegal), by contrast, was $500 million ahead of forecast at $900 million.
Much of the variance related to timing issues in tax revenues. But the Treasury noted that company tax revenue was $200 million lower than forecast.
For the full year to June 2009, the Treasury forecast obegal to be slightly ($64 million) in deficit. But that was before the credit crunch turned into a full-blown crisis over the past two months.
The crown balance sheet shows total borrowing at $49 billion running $3 billion more than forecast. Most of that, $2 billion, is funding additional settlement cash at the Reserve Bank.
