Finance Minister Bill English says next month's budget forecasts will reflect the weaker track of inflation, which erodes tax revenue and is making it less likely the government will achieve a surplus this year.
The Crown accounts turned to a deficit of $269 million, on an operating balance before gains and losses (Obegal) basis, in the eight months ended Feb. 28, compared to a surplus of $77 million in the seven months through January, the Treasury said today.
The February accounts show goods and services tax came in $261 million below estimate, and while some $150 million of that related to earthquake-related refunds to insurers, "the rest of the GST shortfall is related to very low inflation leading to lower-than-expected spending on consumption."
The Treasury flagged in December that the government's target of a return to surplus in 2015 would be delayed by a year, projecting a Obegal deficit of $572 million for the June 2015 year, turning to a surplus of $565 million in 2016. But English had held out the hope that 2015 could yet deliver a surplus once the final accounts were tallied in October. Today he said that's less likely.
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"We're continuing to manage the books carefully but lower inflation, while good for consumers, is making it less likely that the final accounts in October will show a surplus for the whole year," English said. "Next month's Budget will produce new forecasts that I expect will take in to account further reductions in the inflation outlook."
The Reserve Bank last month slashed its forecast for annual inflation in the year ended March 31 to zero, lowered the track for the next two years, and removed the projection for interest rate increases. It now doesn't expect inflation to return to the 2 per cent mid point of its 1 per cent-to-3 per cent target range over its forecast horizon. First-quarter inflation figures are scheduled for release on April 20.
The government eight-month financial statements show core Crown expenses were $312 million below forecast at $47.2 billion, which was spread across a number of departments, allowing English to say the government "continues to do a good job of controlling its own expenditure."
The operating balance was a deficit of $952 billion, compared to a forecast surplus of $941 million. That reflected net losses on non-financial instruments - mainly actuarial losses on ACC and Government Superannuation Fund (GSF) liabilities - that were $4.3 billion more than expected, partly offset by net gains on financial instruments coming in $1.7 billion higher than forecast.
The government's net debt was $63.5 billion, or 26.7 per cent of gross domestic product, as at Feb. 28, $700 million below forecast, while gross debt of $87.5 billion, or 36.8 per cent of GDP, was $3.5 billion more than expected. The Crown's residual cash deficit was $3.7 billion, or $428 million better than expected.
As at Feb. 28, total Crown assets were valued at $263.5 billion, and liabilities at $183.7 billion and the Crown's share of net worth stood at $74.6 billion.