Government's 8-month operating deficit before gains and losses comes in at a lower than forecast deficit of NZ$3 bln thanks to a higher tax take

Stronger than expected tax revenue, helped by a higher average tax rate from fewer workers and a tax boost from the strong performance of sharemarkets, helped the Government's operating deficit before gains and losses came in NZ$556 million lower than forecast, albeit still at NZ$3 billion.

Treasury said the Crown's Operating Balance before Gains and Losses (OBEGAL) for the eight months to the end of February was in deficit to the tune of $3 billion, which was NZ$556 million lower than forecast mainly because core tax revenue came in NZ$719 million higher than expected.

"There were two tax types contributing to the higher than forecast tax revenue: Tax from source deductions was NZ$266 million above forecast owing to a higher than expected effective tax rate. Total labour force earnings were in line with forecast, however the composition of the labour force has changed with a fall in employment concentrated at the lower end of the income scale. Overall, this means 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," said Treasury.

"Tax from other individuals was NZ$326 million above forecast, primarily owing to higher taxable income being declared, part of which was from investment income on the back of strong equity markets."

Finance Minister Bill English said the higher than forecast tax revenue continues to underpin an improvement in the Government’s finances, compared to the Half-Year Update in December.

“The other pleasing aspect of the financial statements is that government spending remains under control,” English said. “That is important as we remain on track to surplus in 2014/15."

“It will remain important beyond then, because we will need to build up sufficient surpluses to provide choices around repaying debt and investing more in priority public services.”

Core Crown expenses were NZ$370 million below forecast at NZ$45 billion. Treasury said this was mostly due to delays in finalising "complex negotiation issues" in Treaty of Waitangi settlements.

Including net gains, the operating balance was in surplus by NZ$4.3 billion, which was a massive NZ$4.8 billion ahead of forecast. This was largely because of significant net investment gains made by the New Zealand Superannuation Fund (NZ$1.5 billion) and the Accident Compensation Corporation (NZ$600 million). ACC also booked higher than expected actuarial gains on its outstanding claims liability of NZ$1.5 billion, mostly because of favourable changes in the discount rate and claims experience.

The residual cash deficit was NZ$434 million smaller than expected, largely through higher tax receipts than forecast. Meanwhile, net debt was NZ$614 million lower than forecast at $57.737 billion, reflecting the residual cash result and higher than forecast levels of currency in circulation.  See the full Crown accounts here.