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NZ govt operating 6-month surplus bigger than expected as fatter GST, income tax take beds in

Tuesday 13th February 2018

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The New Zealand government's operating surplus was bigger than expected in the first six months of the 2018 financial year as low unemployment and upbeat consumer sentiment helped GST and income taxes continue to track ahead of forecast. 

The operating balance before gains and losses was a surplus of $1.09 billion in the six months ended Dec. 31, more than three times the $311 million surplus predicted, and up from a wafer-thin $9 million surplus a year earlier, the latest government accounts show. The Crown's tax take rose 4.9 percent to $37.18 billion and was $597 million ahead of forecast, due largely to source deductions tracking $300 million ahead of expectations and GST $200 million ahead. Treasury officials said they expect some of those gains to remain through to the end of the financial year on June 30.

The higher take from source deductions "is likely due to higher employment growth compared to the PAYE forecast" while GST was bolstered by "residential investment and to a lesser extent, private consumption," the Treasury said in comments accompanying the accounts. The source deductions "variance is expected to remain until year end" and "underlying GST is expected to remain above forecast." 

The Crown accounts follow government figures showing the lowest unemployment rate since December 2008 with firms still absorbing the inflow of new migrants while separate data reported strong retail sales in recent months. The increased tax take from PAYE and GST in the current financial year shows consumers catching up with businesses in the June 2017 year, when stronger company profits underpinned corporate taxes beating forecasts. 

Since the new Labour-led government took the Treasury benches, business confidence has plunged as firms remain uncertain about new regulatory settings they may face and existing biases against Labour by business owners undermine headline confidence figures even if activity readings don't match. Finance Minister Grant Robertson, who will deliver his first budget on May 17, is seeking to allay those concerns, telling Parliament's finance and expenditure committee ministers are trying to bring businesses on board with the government's vision. 

The Crown accounts show core Crown expenses rose 4.1 percent to $39.62 billion, some $166 million ahead of expectations with some costs coming earlier than anticipated. 

Net debt was $64.82 billion, or 23.2 percent of gross domestic product, $515 million below forecast and down from $65.34 billion a year earlier. That was due to having more currency in circulation, which bolsters available financial assets, and higher valuation gains than anticipated. The core cash deficit of $5.95 billion was in line with expectations, widening from $3.91 billion a year earlier. 

Robertson has signalled capital investment as a key focus for future budgets with some $41.7 billion of spending expected over the next five years. The Crown accounts show total capital commitments of $13.53 billion as at Dec. 31, up from $12.09 billion a year earlier, of which state highways account for $6.96 billion, land and buildings $3.13 billion, and other property plant and equipment $2.13 billion. 

The operating balance, which includes unrealised movements in the value of the Crown's investment portfolio, was a surplus of $3.51 billion, beating a forecast of $2.67 billion as investment gains from the New Zealand Superannuation Fund and Accident Compensation Corp portfolios were higher than expected. 

The Crown's net worth was $114.09 billion, some $826 million more than expected, and up from $95.55 billion a year earlier. 


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