Thursday 6th June 2019
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The Treasury and Inland Revenue Department are looking into why the government's April financial statements showed the 10-month tax-take running $2.25 billion ahead of the budget forecasts, just one week after they were publicly released.
The government collected $71.07 billion in core taxes in the 10 months ended April 30, up from $65.3 billion a year earlier, and tracking ahead of the May budget estimate of $68.82 billion. The higher tax take has the operating balance before gains and losses in surplus of $5.17 billion, up 52 percent from a year earlier, and about twice the size of the $2.56 billion budget forecast.
Chief government accountant Paul Helm said the monthly financial statements can fluctuate from month to month due to a variety of factors. IRD started using a new IT system in April which recognises tax revenue more smoothly throughout the year. In the past, it relied on year-end assessments to estimate income tax.
The budget forecasts assumed a transitional adjustment, bringing forward $600 million of tax into the June 2019 fiscal year. However, the Treasury said the actual level was still uncertain and may be higher. That means there will be some large differences between what's reported and the forecasts over the coming year.
"The Treasury and Inland Revenue are continuing to do more analysis on the April results and for the May 2019 financial results," Helm said in a statement. "At this stage, the year-to-date results do not necessarily indicate a significant deviation from the full year expected results."
IRD has been working on a major transformation of its IT infrastructure and underlying business processes to manage the administration of the tax system more smoothly. The overhaul also sought to remove risks that had built up over the years through tacking on new systems to its ageing IT architecture, such as KiwiSaver and student loan administration.
Finance Minister Grant Robertson last week unveiled his first 'well-being' budget, where he flagged increased operating and capital spending, especially in health and education, leading to smaller surpluses.
Robertson today said the April accounts are the first using IRD's new system, whereas the budget forecasts relied on the old system.
"The government is taking the responsible approach of waiting to see how the variance between actual revenue and the forecasts shifts over the next few months," he said.
"There is a chance that some of it reverses out due to timing differences, which have made it look like revenue is running ahead of the forecasts based on the old model."
The April statements also show Crown spending was tracking below expectations at $70.85 billion, some $280 million below forecast, which it put down to less demand than expected. The bulk of that was in education - where the fees-free policy hasn't attracted as many students as anticipated - at $11.64 billion, some $257 million below expectations.
Social security and welfare transfers were about $92 million below expectations at $23.6 billion. Within that, superannuation was in line with forecasts at $12.04 billion, up from $11.33 billion. The Working For Families tax credit was $91 million below forecast at $1.71 billion, up from $1.29 billion a year earlier.
The higher tax take led to a smaller cash deficit of $5.34 billion than the $5.92 billion anticipated. That contributed to a smaller net debt than forecast of $62.28 billion, or 21.2 percent of GDP.
Robertson flagged the government will take on more debt over the coming years to help fund its increased spending programme, at a time when the Crown's borrowing cost is at a record low. On May 9, the Debt Management Office sold $200 million of 2029 bonds paying annual interest of 3 percent at an average yield of 1.8281 percent. The yield on the 10-year government bond recently traded at 1.715 percent.
The government wants to spend $41.1 billion over the next five years on infrastructure, with the first tranche of a school building programme spearheading its capital expenditure. However, those spending intentions haven't kept up with expectations, due in part to a lack of spare capacity in New Zealand's construction sector.
The April accounts' cash flow statement shows the Crown's net purchase of physical assets at $6.96 billion, up from $6.42 billion spent a year earlier, but lagging behind its $7.62 billion forecast.
The Crown's operating balance, which includes movements in the fair value of its investment portfolios and actuarial adjustments, was a surplus of $848 million in the 10-month period, better than the $2.06 billion deficit. Total net losses of $4.5 billion were due to a decrease in the discount rate used to value the government's long-term liabilities, and favourable exchange rate movements.
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