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NZ govt 1H operating deficit in line with forecasts, Treasury warns on corporate tax

Monday 20th February 2012

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The New Zealand government’s first-half operating deficit was in line with expectations, though the Treasury warned the corporate tax take may taper off through the second half of the year.

The operating balance before gains and losses (OBEGAL) was a deficit of $4.09 billion in the six months ended Dec. 31, just $3 million wider than the pre-election fiscal and economic update forecast (PREFU).

Core crown tax revenue was $400 million short of expectations at $26.4 billion, with source deductions and goods and services tax below forecast. Total corporate tax accrued of $3.7 billion was in line with forecasts, having beaten expectations in recent months.

“Data on provisional tax assessments received during the month of December, together with slightly weaker-than-expected growth in GDP in the September quarter, indicates that corporate profits may be weaker for the full financial year,” chief financial officer Fergus Welsh said in a statement.

Last week, the Treasury downgraded the forecast tax take to $28.7 billion for the 2012 financial in the budget policy statement, and flagged an OBEGAL deficit of $12.08 billion, wider than the $10.81 billion shortfall projected in the PREFU.

The global deterioration originating out of Europe raised red flags for the government department, and while that poses a heightened risk to the country’s economy, things aren’t yet a worst-case scenario.

The operating deficit was $2.6 billion wider than expected $9.47 billion in the six-month period, with larger actuarial losses in the Government Superannuation Fund and Accident Compensation Corporation’s outstanding claims liability.

Finance Minister Bill English said lower government spending helped offset the fall in revenue, and the Crown must stay disciplined to meet its target $370 million surplus in the 2014/15 year.

“That is why we have made it one of our four main priorities, alongside building a more productive and competitive economy, delivering better public services and rebuilding Canterbury,” English said. “The economic update in the budget policy statement last week shows growth will be slightly lower in the near term due to a weaker global outlook.”

The government’s net debt was $50.13 billion, or 24.7 percent of GDP, $499 million below forecast.

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