The New Zealand government's operating deficit was wider than expected in the first half of the 2014 financial year, with a smaller than forecast tax take across the board confusing officials as to whether this was a temporary anomaly or something more permanent.
The Crown's operating balance before gains and losses (obegal) was a deficit of $1.79 billion in the six months ended December 31, $380 million wider than forecast in its Dec. 17 half-year economic and fiscal update, and down from a shortfall of $3.19 billion a year earlier. Core tax revenue was $602 million below forecast at $29.18 billion.
"At this stage it is difficult to determine how much of the lower than forecast tax is temporary versus permanent, but we expect this to become clearer over the next few months," the Treasury's acting chief government accountant Fergus Welsh said in a statement.
The smaller tax take was across the board, with GST 2.3 per cent below forecast at $7.5 billion, source deductions for personal income tax 1.2 per cent below forecast at $11.71 billion, and total corporate tax 4.9 per cent below expectations at $3.56 billion.
Treasury officials said some of the lower GST take was due to earthquake related refunds, and that the shortfall in Pay As You Earn might be short-lived. The corporate tax take shortfall was smaller than in the previous month, though "other negative factors (relative to forecast) within corporate tax remain, suggesting some downside risk to the full-year corporate tax result."
The government expects to post an obegal deficit of $2.3 billion in the current financial year ending June 30 before returning a surplus of $86 million the following year. Treasury officials are picking accelerating tax revenue growth as an expanding labour market provides more income tax, and as rising wages get caught in the fiscal drag of people entering a higher tax bracket.
The Crown's expenses were in line with expectations at $34.69 billion in the period, with higher than expected defence spending offset by delays to finalising negotiations in Treaty of Waitangi settlements.
The core residual cash deficit was $653 million higher than forecast at $7.27 billion largely due to the smaller tax take. The cash balance is forecast to return to surplus in 2017, after which the government plans to start reducing debt.
The Crown's net debt was larger than expected at $62.3 billion, or 28.8 per cent of gross domestic product, while gross debt was below forecast at $82.98 billion, or 38.4 per cent of GDP.
The operating balance, which includes movements in its investment portfolios and actuarial adjustments, was a surplus of $3.16 billion, $1.57 billion ahead of the December forecast due to net gains from equities from the government's investment portfolios such as the New Zealand Superannuation Fund. That compares to a surplus of $1.71 billion a year earlier.