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Govt deficit shrinks as returns offset drop in tax take

Thursday 14th October 2010 1 Comment

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The government's annual deficit shrank as bigger returns from the ACC and New Zealand Superannuation Funds helped make up for a declining tax take.

The government's deficit narrowed to $4.5 billion in the year ended June 30, from a $6 billion deficit a year earlier, according to financial statements released today.

That was underpinned by a $2.5 billion gain in the value of the so-called Cullen Fund and ACC investment portfolios underpinned. Stripping out non-realised gains, the government's operating balance before gains and losses (OBEGAL) reported a deficit of $6.3 billion from $3.9 billion in 2009.

The government's tax-take fell to $50.1 billion from $51.1 billion in 2009, with a $2.1 billion decline in corporate taxation to $7.2 billion, while personal tax receipts fell $1.5 billion to $$24.4 billion. The take from goods and services tax rose $350 million to $11.9 billion, and will probably gain in the following year with the government hiking GST to 15% from October 1.

"There are early signs New Zealanders are rebalancing their own behaviour quite markedly and faster than we expected," Finance Minister Bill English told a briefing in Wellington.

"This recovery will remain quite different to what we have seen in New Zealand in the past. It will not be fuelled by debt and consumption."

New Zealand's economic recovery tapered off mid-way through this year as households took on board messages from the government and Reserve Bank to repay debt and reign in spending.

The government squeezed $3.4 billion from is expenses, mainly in operating expenses. Having talked tough on removing back-office administration staff from the public sector, the government boosted its spending state sector salaries by $500 million to $18.5 billion.

The government faces a hefty bill from the failure of the finance sector, the biggest of which was South Canterbury Finance which immediately cost the Crown $1.7 billion to take on all liability from creditors. The Treasury expects the net cost of the retail deposit guarantee to cost some $800 million.

The collapse of SCF, Allied Nationwide Finance and Mutual Finance. in July and August will make up the bulk of this cost, at about $745 million. Prior to that, the government faced a $43 million bill as a result of failed financiers.

Net debt increased to $26.7 billion, or 14.1% of gross domestic product, from $17.1 billion, or 9.3%, in 2009.

English said he expects the government's level of debt to stay high for some time, and talked down the prospect of more optimistic forecasts in its half-year update.

"The half-year update is unlikely to show any positive growth or revenue surprises," he said.

"Tax revenue could be lower, though with the increase in GST, I'm told nominal GDP has held up."

 After its $2 billion win in the structured finance tax case against the major banks last year, the government noted it faces a $295 million contingent liability this year, though it didn't indicate what that related to.

The value of the government's investment in Air New Zealand fell to $402 million as at June 30 from $447 million a year earlier.

Businesswire.co.nz



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Comments from our readers

On 14 October 2010 at 7:43 pm Arty said:
Is the Cullen fund being held in trust for payments to retiring Kiwi workers? Is ACC not a fund financed by taxpayers to pay for injuries? Both these funds should be accounted for outside the goverment accounts as they are not really government funds. Like housing and other big ticket items are removed from the "offical" inflation figures. Seems to me government uses selective accounting to hide the true picture.
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