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Govt accounts show GST bonanza failed to eventuate

Monday 8th November 2010

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New Zealand’s budget cash deficit was wider than forecast in the third quarter as an expected surge in spending ahead of the increase in GST failed to eventuate and companies paid less tax.

The core Crown residual cash deficit was $6.45 billion in the three months ended September 30, which was $885 million wider than the Treasury had forecast. Tax receipts in the latest quarter were 8.2% less than expected at $12.5 billion.

Both retailers and the Treasury had anticipated a consumer spend-up on big-ticket items to beat the increase in GST to15% from 12.5% last month. Instead, consumers stayed away in droves and Reserve Bank Governor Alan Bollard cited their lack of spending when he kept the official cash rate at 3%. At the same time, he noted dwindling confidence among companies.

The financial statements for the three months to September 30 show corporate tax revenue was $500 million, or 22.4% below forecast, mostly reflecting lower-than-expected provisional tax assessments.

“That suggests that while corporate profits were higher than they were at the same time last year, they were still lower than anticipated,” the Treasury said in its statement.

The Government remains committed to sound management of its finances and ongoing spending restraint as the economy continues to recover from recession, Finance Minister Bill English says.

Gross debt was $2.5 billion higher than expected at $59.1 billion, though $1.4 billion of the variance was due to the government’s liability under the Deposit Guarantee Scheme.

"The $1.1 billion lower than forecast tax take is largely the result of lower than expected consumer spending as New Zealanders pay down debt and save more," Finance Minister Bill English said in a statement. “Although the Treasury expects some of the lower tax take to reverse in coming months, it reinforces the need for ongoing fiscal discipline.”

English said that "in many ways restraint in the public sector is only just starting” and the government faces “a significant medium term challenge to get back into surplus as soon as possible.”

The quarterly accounts also recorded a $1.5 billion cost to the Earthquake Commission stemming from the Canterbury earthquake. In addition, the government is committed to reimbursing some of the rebuilding costs for certain local government infrastructural costs, which it hasn’t quantified yet.

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