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NZ govt operating deficit smaller than forecast as investment tax take climbs

Friday 8th March 2013

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The New Zealand government had a smaller operating deficit than expected in the first seven months of the financial year as the tax take on investments gained on the rally in stock markets, and higher income workers made up for falling job numbers for the lower paid.

The operating balance before gains and losses (obegal) was a deficit of $2.51 billion in the seven months ended Jan. 31, 19 percent smaller than forecast in the December half-year economic and fiscal update, according to the Crown's latest accounts.

Core Crown tax revenue was 1.5 percent ahead of schedule at $33.11 billion with income tax ahead by $225 million and tax from other individuals - which includes on investments - $277 million more than forecast. Government expenses were $282 million behind forecast due to ongoing delays in complex Treaty of Waitangi negotiations.

"Total labour force earnings were in line with forecast, however there was a fall in employment concentrated at the lower end of the income scale," Treasury's chief financial officer Fergus Welsh said in his commentary. "The same amount of income was earned by fewer workers, increasing the average tax rate due to the progressive nature of the personal income tax scale."

Persistently high unemployment has been a bugbear for New Zealand's economy, which is relying on the rebuild in Christchurch to re-ignite economic growth. Economists, government officials and politicians have been sceptical of the official household labour force survey, which puts the jobless rate at 6.9 percent, saying it is often volatile and hasn't married up with falling benefit numbers and the tax take.

The government is trying to get its books back in the black in the 2014/15 financial year after taking serious hits from the global financial crisis and Christchurch earthquakes. In the update just before Christmas, Treasury forecast an obegal surplus of just $66 million in the 2014/15 financial year, down from the $197 million buffer flagged in the May budget.

Finance Minister Bill English said the figures were "encouraging" but the government is firmly focused on strengthening its balance sheet.

"We will also press ahead with our programme to build a more competitive economy and support the business investment needed for growth and jobs," he said.

The Crown's operating balance was a surplus of $4.17 billion in the seven month period, compared to a forecast deficit of $154 million, due to investment gains in the New Zealand Superannuation Fund and Accident Compensation Corp's investment portfolio, and actuarial gains on future liabilities for ACC.

The better than expected tax take from individuals made up for corporate tax revenue, which was 2.7 percent below forecast at $4.02 billion on an accrual basis.

Goods and Services tax accrued after refunds was 0.6 percent ahead of expectations at $8.77 billion due to fewer refunds than forecast being claimed. Gross GST was 1.5 percent below expectations at $14.68 billion, something Treasury estimates might cause a "slightly negative" underlying variance to the annual take.

The government's net debt at $57.3 billion, or 27.5 percent of GDP, as at Jan. 31 was 0.6 percent smaller than forecast.

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