Surplus lower than expected - but still $8.8bn

Crown accounts for the 11 months ending March 2006 show the Government running an operating surplus of $8.8 billion, $0.2b lower than forecast in the May 18 Budget.

The release of the financial statements for the 2005/2006 financial year today showed a reverse of recent trends where Treasury had built up a reputation of underestimating the size of Finance Minister Michael Cullen's surplus.

Officials said it had been "some years" since Treasury predictions had fallen short of forecast.

Dr Cullen has taken issue with reporting of the Government's books saying it over emphasised his ability to spend or cut taxes.

Dr Cullen preferred the public to focus on the Government's cash surplus, which showed the state of the books after all capital expenditure and investments have been made such as putting money into the New Zealand Superannuation Fund.

This was running at $2.69b, $655 million ahead of budget day forecasts

Treasury said the better than expected cash position was due to delays in capital spending and investments.

Because the Government had more cash on hand and the recent fall in the dollar, net core Crown debt was $0.9b lower than forecast at $8.3b.

The lower than forecast operating balance was due to lower than forecast net income on investments of $0.5b, primarily due to a weakening in equity markets during May, Treasury said.

This was offset by lower than forecast spending ($0.2b) and higher than forecast tax revenue of $0.1b.

Another measure of the Government's financial health -- the operating balance removing revaluations and accounting items -- was running at $7.3b, $0.3b higher than forecast.

While the Government took a hit from the downturn in the equity market in May, it still profited from growth in taxation with revenue running $3.1b higher (growth of 7.3 per cent) than the comparable period from the previous financial year.

The growth in revenue was outstripped by an increase in Government expenses of $5.3b (growth of 12.9 per cent), higher than the comparable period from the previous financial year.

This was due to increases across the board with welfare expenses $0.9b higher than the previous year due to the working for families package and indexation of welfare benefits.

Health expenses were $0.8b higher and education expenses were up $2.0b mainly due to the interest-free student loan scheme.

Other areas to show large increases included a $0.3b increase in transport spending.

- NZPA