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NZ budget surplus exceeds forecast in 11 months to May 31, on track to meet full-year surplus

Tuesday 5th July 2016

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The New Zealand government posted a larger-than-expected operating surplus in the first 11 months of the financial year, although most key indicators were in line with budget projections, meaning the forecast full-year surplus is likely to be achieved.

The operating balance before gains and losses (obegal) was a surplus of $2.3 billion in the 11 months ended May 31, above the $1.98 billion forecast in the Budget Economic and Fiscal Update, which projected a full-year surplus of $700 million.

"Most key indicators were consistent with BEFU forecasts, with the large timing variance in tax revenue from April of $1.1 billion largely reversing as expected," the Treasury said. Core Crown tax revenue at $64.7 billion, was 0.6 percent or $364 million higher than forecast largely reflecting customs and excise duties ($188 million), source deductions ($182 million) and GST ($98 million), it said.

Core Crown expenses at $67.2 billion, were $89 million below forecast.

The BEFU identified population growth as the biggest contributor to gross domestic product growth this year and next, while per-capita growth was seen taking over in 2018 via a combination of labour productivity and utilisation. Net migration was expected to peak at 70,700 in the year ended June 30 before returning to the long-run average 12,000 a year by June 2019, more than a year later than it projected in December.

The operating balance including gains and losses was a deficit of $1.46 billion in the 11 months to May 31, which was $82 million worse than forecast. Net losses were higher than expected at $378 million, reflecting ACC actuarial losses of $880 million and losses of $520 million due to increased Emissions Trading Scheme liabilities. These were offset by $1 billion of favourable movements in financial instruments, the Treasury said.

Compared with the 11 months ended May 31, 2015, total core Crown revenue was $3.5 billion higher at $69.8 billion, outpacing a $1.5 billion gain in core Crown expenses at $67.2 billion.

The biggest increases in expenses were in social security and welfare, up $567 million to about $22 billion, which the Treasury said reflected the indexation of welfare benefits and an increase in recipient numbers, particularly for NZ superannuitants. Health expenses rose by $506 million to $14.3 billion, which it said was funding provided in the 2015 budget to maintain and improve existing service levels.

Net debt was $61.5 billion, or 24.7 percent of gross domestic product, compared to the BEFU forecast of about $62 billion, or 24.9 percent of GDP.

As at May 31, total Crown assets were valued at $285.6 billion and liabilities were $195.3 billion while the Crown’s share of net worth stood at $84.6 billion.

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