Tuesday 11th March 2014
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The New Zealand government's operating deficit was wider than expected in the first seven months of the 2014 financial year, with a smaller tax take than forecast and lower than anticipated tobacco excise duty.
The Crown's operating balance before gains and losses (obegal) was a deficit of $1.06 billion in the seven months ended Jan. 31, more than twice the size of the $426 million deficit predicted three months ago, in the Dec. 17 half-year economic and fiscal update.
However, the obegal is still tracking below the deficit of $2.51 billion recorded at the same time last year. Core tax revenue was 2.4 percent, or $876 million, below forecast at $34.98 billion.
"At this stage, it is difficult to determine how much of the lower than forecast tax is temporary versus permanent, but we expect this to become clearer over the next few months," the Treasury's acting chief government accountant Fergus Welsh said in a statement. "Timing issues are likely to see some of the current variance narrow by year end."
Finance Minister Bill English acknowledged the growing concern over the lower than expected tax take, which was occurring "despite stronger economic growth."
"The lower revenue is at odds with other macro-economic indicators that have been broadly in line with the Half-Year Update forecasts and, if anything, point to even stronger economic growth in the second half of the 2014 fiscal year," said English.
The reduced tax-take was across the board with personal tax accrued 1.4 percent below forecast at $16.46 billion, corporate tax 4.9 percent short of expectations at $4.29 billion, other income tax such as resident withholding tax 1.2 percent below forecast at $1.13 billion, and goods and services tax accrued 3.7 percent below expectations at $9.2 billion.
Treasury officials said some of the lower tax receipts were due to a mismatch in timing between GST refunds and receipts relating to exports and the Canterbury rebuild, and tax revenue from some large corporate taxpayerss not yet visible to the Inland Revenue Department.
Tobacco excise was 11 percent below forecast at $987 million, adding to pressure on the Crown revenue, and the Treasury now expects about $80 million of that reduction to be permanent. The government hiked tobacco excise in the 2012 Budget, which was forecast to raise $1.4 billion over a four-year period, but was raised in part to reduce tobacco use and therefore should fall over time as smokers quit.
The government expects to post an obegal deficit of $2.3 billion in the current financial year ending June 30 before returning a surplus of $86 million the following year. Treasury officials are picking accelerating tax revenue growth as an expanding labour market provides more income tax, and as rising wages get caught in the fiscal drag of people entering a higher tax bracket.
Finance Minister Bill English said the government is still on track to meet its surplus in the 2015 financial year, but the tax take uncertainty underlined the importance of controlling government spending, even as the economy recovers.
The Crown's operating expenses were 0.3 percent, or $138 million, lower than forecast at $40.13 billion in the seven-month period, due to delays in finalising Treaty of Waitangi negotiations.
The core residual cash deficit was $4.11 billion, 27 percent below forecast, due to the lower than expected tax take and earlier personnel and operating payments across a number of government departments.
The Crown's net debt was a bigger than expected $59.9 billion, or 27.7 percent of gross domestic product, while gross debt was below forecast at $83.33 billion, or 38.6 percent of GDP.
The operating balance, which includes movements in the Crown's investment portfolios and actuarial adjustments, was a surplus of $3.37 billion, $629 million ahead of the December forecast, due to unrealised investment gains from the likes of the New Zealand Superannuation Fund. That compares with a surplus of $4.17 billion a year earlier.
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