Recession takes $3.4b from Govt tax take

Finance Minister Bill English. Photo / Mark Mitchell

Seven months into the Government's financial year tax revenue is 10.5 per cent, or $3.4 billion, down on the same period a year earlier, as the recession takes its lagged toll on incomes and profits.

This is not a surprise.

The financial statements for the seven months ended January released by the Treasury yesterday showed revenue $72 million, or 0.2 per cent, ahead of its forecasts for this stage of the fiscal year.

But it still means the company tax take is 27 per cent down on a year earlier, "other persons" (the self-employed) down 20 per cent and PAYE down 5.7 per cent.

The company tax take is even lower than expected, by $150 million, or 4.3 per cent, as business profitability proves weaker than forecast in December. The latest crop of results reported by listed companies reinforced that picture, the Treasury said.

And the tax take from the self-employed seven months into the year is nearly $200 million, or 11 per cent, weaker than expected.

But on the other hand GST is $260 million, or nearly 4 per cent, ahead of forecast and almost unchanged from the same period a year ago. On the expenditure side of the books, Government spending is 3.7 per cent, or $1.3 billion, ahead of the seven months to January 2009.

That is mainly explained by a $1.1 billion increase in social security and welfare payments, reflecting inflation indexation, and an increase in beneficiary numbers.

Health and education spending were up too, by $500 million and $400 million respectively. But the overall operating deficit is $600 million, compared with the $2 billion forecast by this stage of the year.

Much of the difference is a $664 million better-than-forecast performance by ACC and a $122 million positive surprise from the NZ Superannuation Fund.

"Some of these gains may well be reversed in coming months," Finance Minister Bill English said. "And in the context of the much bigger fiscal challenges we face over the next few years, they are really just incremental improvements."

Net debt is $9.7 billion higher than a year ago and is forecast to treble to $65 billion by 2014 as Budget deficits persist for another six years.

"Most government agencies will receive no new money in the Budget on 20 May. So they will need to reprioritise existing spending to ensure they are delivering better services to the public and value for money for taxpayers," English said.

The Government would operate within the $1.1 billion allowance for new spending it set out in the Budget last year.