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NZ operating deficit smaller than predicted

Tuesday 4th June 2013

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The New Zealand government reported a smaller operating deficit than predicted in last month's Budget forecasts as improving corporate profitability underpinned a bigger company tax take.

The operating balance before gains and losses (obegal) was a deficit of $3.99 billion in the 10 months ended April 30, smaller than the $4.65 billion shortfall projected in the Budget Economic and Fiscal Update, according to the Crown's latest accounts. Core tax revenue was $486 million ahead of expectations at $48.2 billion in the period, with corporate tax ahead of forecasts. Core expenses were $103 million short of predictions at $57.83 billion, due to a fewer students in demand driven programmes and underspending in the Defence Force.

"Just over half this variance is through to be the result of higher corporate profitability, partly resulting from continued strength in equity markets," Treasury chief financial officer Fergus Welsh said in a statement. "The remainder is a timing difference with some large taxpayers filing returns in April, earlier than expected."

The government is sticking to its pledge to return to budget surplus of $75 million in 2015 by putting on a new spending cap and further delaying contributions to the New Zealand Superannuation Fund.

The Crown reported a smaller operating surplus of $2.81 billion compared to the expected $2.95 billion, saying low interest rates resulted in a lower discount rate being used at the end of April to value the long-term cost of the Accident Compensation Corp's future liabilities.

That led to an $830 million paper-loss in the actuarial valuation of ACC's liabilities, compared to an expected surplus of $686 million. The government's ACC liability was valued at $32.88 billion as at April 30.

Personal income tax accrued was $140 million less than forecast at $22 billion in the 10 month period, and the goods and services tax take was in line with expectations at $12.41 billion.

The government's gross debt of $79.68 billion was ahead of expectations because the Reserve Bank held more financial liabilities than forecast as part of its normal liquidity management activities, but netted out as debt neutral because of the bank's increased holdings of financial assets. The Crown had net debt of $60.06 billion, or 28.7 percent of GDP, as at April 30.

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