Weak tax take contributes to NZ fiscal deficit

Finance Minister Bill English says the weak tax take reflects how fragile the Government's finances still are. Photo / Mark Mitchell

Weak personal and corporate tax takes are swelling the government's fiscal deficit, despite one-off gains from big tax avoidance settlements and under-spending in a range of areas, according to Treasury figures for the nine months to March 31.

The operating deficit on a near-cash basis for the period was $5.27bn, or 9 per cent below the forecast $5.79bn operating deficit forecast in the half year fiscal and economic update in December.

However, that improvement reflected $400m of one-off tax payments from the foreign-owned banks relating to structured finance transactions which were ruled to be tax avoidance, while government spending was 1.7 per cent lower than forecast at $46.99bn.

Most of the under-spending related to Treaty of Waitangi settlement payments not occurring as quickly as anticipated, an error in education spend forecasting of around $50 million, and a large number of smaller under-spends in other areas, some of which will still occur before the end of the government's financial year, on June 30.

Shorn of the banks' payments, the corporate tax take was $930m, or 2.4 per cent below forecast, while the tax take from provisional taxpayers at $309m were 12.8 per cent below forecast and source deductions were down 3.2 per cent on forecast, reflecting tough commercial and labour market conditions.

The only bright spot was the GST take, which was $314m, or 3.7 per cent, higher than forecast, and this was expected to be sustained through to the end of the financial year, the Treasury said.

Finance Minister Bill English said the weak corporate tax take demonstrated how fragile the government's finances remain.

"Just two weeks out from the Budget, it underscores the brittle fiscal position faced by the government how finely balanced the situation is.

"The slightly better economic outlook will take time to feed in the government's books. It certainly won't bring any dramatic changes to the Budget's fiscal forecasts, compared to the half-year update in December."

While there might slightly stronger revenue from areas and slightly lower welfare spending, there was nothing in today's figures to east the outlook for "several more years of Budget deficits," English said.

When unrealised gains and losses are factored in, the operating deficit was 60.2 per cent lower than forecast, at $1.33bn, mainly due to gains on the value of New Zealand Superannuation Fund, Accident Compensation Corporation, and Earthquake Commission investment portfolios.

Lower than anticipated payouts on ACC claims had also created a $173 million actuarial gain where a small loss had been forecast.