NZ Govt operating deficit widens as SH1 costs grow

The Irongate bridge construction site on State Highway One, north of Kaikoura. Photo / Mark Mitchell

The New Zealand government's operating deficit was slightly wider than expected in the first four months of the financial year as the cost of reinstating State Highway 1 between Picton and Christchurch was more expensive than anticipated and as customs and excise duties lagged behind forecast.

The operating balance before gains and losses (obegal) was a deficit of $308 million in the four months ended Oct. 31, compared to a forecast shortfall of $217 million and widening from $131 million a year earlier. Tax revenue rose 4.4 percent to $24.17 billion, although it was $69 million short of forecast as petrol and tobacco excise taxes fell from a year earlier and missed expectations. Meantime, core Crown spending rose 5.3 percent to $26.32 billion, some $233 million ahead of forecast with the cost of reinstating the South Island highway link one of the more expensive items.

"Obegal can fluctuate from month to month as the recognition of tax revenue does not happen uniformly throughout the year, while expenditure is fairly static on a monthly basis before peaking in June," chief government accountant Paul Helm said in a statement. "As a result, it is not unusual for obegal to be a small surplus or deficit in the first part of the financial year."

The Crown accounts are the last spanning the previous administration, with the new Labour-led government sworn in in late October. Finance Minister Grant Robertson will outline his priorities at next week's half-year economic and fiscal update and Budget policy statement. The government has been softening the public for some changes to capital spending, with Prime Minister Jacinda Ardern yesterday saying there had been a lack of budgeting by the previous administration and that unbudgeted projects may be axed.

Today's accounts show the Crown's net debt position was smaller than expected at $61.37 billion, or 22.9 percent of gross domestic product, while the residual cash deficit of $2.02 billion was largely in line with expectations.

Total capital commitments stood at $13.59 billion as at Oct. 31, up from $12.08 billion a year earlier. Of that, $6.96 billion was earmarked for state highways and $3.14 billion for land and buildings.

The operating balance, which includes unrealised movements in the value of the Crown's investment portfolios and actuarial adjustments of its Accident Compensation Corp scheme, was a surplus of $2.08 billion, more than the $714 million expected, as investment gains offset a bigger actuarial loss in the period.

ACC's investment portfolio was valued at $40.4 billion as at Oct. 31, more than the $38.73 billion predicted, while the NZ Superannuation Fund was worth $37.87 billion, against a forecast of $35.17 billion. ACC's long-term liability was valued at $40.52 billion, more than the $38.76 billion projected.