New Zealand firms' stronger profits in 2016 continued to swell the government's coffers in February, helping boost the government's operating surplus beyond forecasts for the first eight months of the financial year.

The operating balance before gains and losses (obegal) was a surplus of $1.41 billion in the eight months ended February 28, more than the forecast surplus of $498 million and up from $398m a year earlier, the latest Crown accounts show. Tax revenue rose 7.7 per cent to $48.14b, $462m ahead of the December half-year fiscal and economic update forecast, of which corporate taxes tracked $551m ahead of expectations.

"Both provision and terminal tax assessments were above forecast, indicating that taxable profits in the 2016 tax year were higher than forecast and this has continued into the 2017 tax year," the Treasury said. "Approximately $100m of this variance is known to be timing in nature and will reverse out in March."

New Zealand businesses lost some of their optimism about the state of the economy in the first three months of 2017, even as their own activity remained robust. Many have faced shrinking margins as rising costs, particularly in the construction sector, haven't been passed on to consumers contending with a low inflation environment and tepid wage growth. However, that sentiment's starting to shift, and the latest quarterly survey of business opinion showed growing comfort among businesses to raise prices.


While the Crown accounts showed the overall tax take was ahead of expectations, source deductions on income tax came in below forecast, which the Treasury said was a bigger seasonal dip than anticipated and expected to reverse out in coming months.

The government's expenses rose 3.9 per cent to $50.32b, some $395m below expectations mainly because of uncertainties about the cost of the Kaikoura earthquake. However, a $266m, or 10 per cent, increase in core government services to $2.91b was largely due to tax revenue impairments.

The Treasury expects the Crown will post an operating surplus of $473m in the year ending June 30 and will update that forecast in the May 25 budget, which will be Finance Minister Steven Joyce's first in charge of the purse strings.

The government has already earmarked $503m of extra funding for police in the budget and $91.1m to beef up the nation's trade efforts. The Crown has continued to focus on reducing debt, but has some headroom to throw money around ahead of the general election in September and tax-cuts have been talked about as being in the mix.

"While the expenses outturn will continue to move around a little, it is good to see the trend of growing tax revenues continue as we head into budget 2017," Joyce said in a separate statement. "Reducing net debt to around 20 per cent of GDP (gross domestic product) by 2020/21 will improve the resilience of the New Zealand economy to future shocks."

The accounts show net debt at $61.33b, or 23.5 per cent of GDP, below the projected $62.2b, or 23.8 per cent of GDP. That was helped by a bigger than expected cash surplus of $1.25b, bolstered by the larger tax take and lower capital spending.

The operating balance, which includes unrealised movements in the Crown's investment portfolio and actuarial valuations of long-term liabilities, was a surplus of $10.56b, some $6.51b ahead of forecast, due to Accident Compensation Corp and Government Superannuation Fund actuarial gains tracking ahead of expectations as rising interest rates lift the projected income needed to meet the workplace insurer's future claims and the pension fund's expected payments.

The Crown's net worth of $99.98b was $6.57b ahead of forecast because of the surpluses.