The New Zealand government's operating surplus for the first seven months of the financial year was bigger than expected as a recovery in the labour market and increased consumer spending plumped up the Crown's coffers.

The operating balance before gains and losses (obegal) was a surplus of $934 million in the seven months ended January 31, ahead of the $210 million forecast in the December half-year economic and fiscal update and the $77 million surplus a year earlier, according to the government's financial statements.

Tax revenue rose 4.6 per cent to $39.53 billion from a year earlier, and was $446 million ahead of expectations as income tax beat forecast on New Zealand's stronger labour market, and as stronger consumption bolstered goods and services tax receipts. At the same time, core Crown expenses rose 2.2 per cent to $42.15 billion, some $403 million below forecast due largely to the timing of expenses such as Treaty of Waitangi settlements

"It's important to remember monthly results fluctuate greatly - core Crown expenses are $403 million lower than expected in part because Treaty settlements forecast in December are now likely to be finalised later in the year," Finance Minister Bill English said in a statement.


"We don't read too much into any particular month's result. We will continue to focus on keeping a tight rein on spending and paying down debt. We're working hard to reduce net government debt to around 20 per cent of GDP (the economy) in 2020."

The Treasury predicts the Crown's obegal will slip back into deficit in the 2016 financial year before returning to smaller surpluses further out as tepid inflation and a lack of wage growth keeps taxes flatter than expected. English has relaxed his focus on avoiding red ink, saying he won't distinguish between small surpluses or deficits in the immediate future.

The Crown's residual cash deficit shrank 34 per cent to $1.45 billion from a year earlier, and was $1.05 billion smaller than forecast due to the stronger tax take, and as gross debt tracked slightly below expectations.

That helped lower net debt, which tracked at $61.84 billion, or 25.4 per cent of gross domestic product, against a forecast of $63.02 billion, or 25.8 per cent of GDP. Gross debt at $85.78 billion, or 35.2 per cent of GDP, was below the forecast $86.37 billion, or 35.4 per cent of GDP.

The operating balance, which includes movements in the Crown's investment portfolios, was a deficit of $2.88 billion, up from a shortfall of $2.28 billion a year earlier, and more than the $92 million deficit predicted due to unrealised losses on the Crown's investment portfolios in what was a volatile January for equity markets. Increased actuarial losses on Accident Compensation Corp's forward liability also increased the shortfall. ACC's forward liability was valued at $33.62 billion as at January 31, down from $34.92 billion a year earlier, but $2.07 billion more than expected.

The Crown's net worth of $83.43 billion as at January 31 was $2.94 billion less than expected due to the increased operating deficit.