Treasury reports budget deficit already NZ$395 mln lower than expected four months into the financial year

Treasury has reported the Government's operating balance before gains and losses was a deficit of NZ$1.7 billion in the four months to October 31, which was NZ$395 million better than it forecast in the May 2013 budget. 

This keeps the Government well on track towards its long-stated target of a small surplus in 2014/15 and means it is already running a surplus after gains and losses on investments are taken into account.

“The result continues a trend over the past year of the Government’s fiscal results exceeding forecasts, as we remain on track to return to surplus in 2014/15,” Finance Minister Bill English said.

“As the Prime Minister and I have said, getting back to surplus remains a significant challenge. Although the economy is improving and revenue is increasing, there are a lot of other large influences on the Government’s books. These include a growing prominence of financial assets and liabilities, which expose taxpayers to greater volatility," he said.

The Treasury's Half Year Economic and Fiscal Update on December 17 will include a full set of new forecasts for both the Government’s books and the economy.

The improvement was due to slightly higher income tax from 'other individuals' and expenses being 1.1% lower than forecast, largely because of delays in earthquake recovery spending and Waitangi Tribunal Settlements.

Core Crown tax revenue of NZ$19.3 billion was 1.0% higher than forecast, due to other individuals' tax and excise duties being NZ$171 million and  NZ$78 million greater than forecast respectively.

"Continued strength in gross other persons tax and lower than expected refunds contributed to the other individuals’ tax outcome, while greater than expected imports of tobacco products and the domestic production of refined fuels underpinned the customs and excise duties result," Treasury said.

It said these improved tax revenues were partly offset by corporate tax receipts being NZ$101 million lower than expected.

Treasury reported greater than forecast gains in the Government's investment portfolios of NZ$1.7 billion, largely from the NZ Super Fund, and actuarial gains from the ACC and the Government Superannuation Fund of NZ$798 million and NZ$539 million respectively.

All these factors meant the operating balance including gains and losses was a surplus of NZ$1.8 billion in the first four months when a NZ$1.5 billion deficit had been forecast.

"As a result of the lower than forecasted residual cash deficit and higher than forecast issues of circulating currency, the core Crown’s net debt was NZ$350 million lower than forecast at NZ$59.1 billion, or 27.8% of GDP," Treasury forecast.

Gross debt at NZ$82.9 billion or 39.0% of GDP was boosted by higher than expected government bond issuance, including the syndication of the new September 2030 inflation- indexed bonds in October.

Accounting loss on Meridian

Meanwhile, Treasury reported the washup from the sale of 49% of Meridian Energy in an NZX float. Proceeds of NZ$1.255 billion were received for the first installment with a further NZ$627.5 million payable on May 15, 2015. There were direct costs of NZ$21 million and a net present value loss of NZ$33 million from the delay in the receipt of the second installment.

Treasury had estimated 100% of Meridian Energy's equity was worth NZ$4.825 billion as at June 30, while the equity was worth NZ$4.596 billion after the sale. The effect of the sale of the 49% was to realise losses of NZ$422 million, although that is reduced somewhat to NZ$378 million because 2.33% of the shares were bought by Government entities such as its fund managers.

(Updated with accounting loss on Meridian sale, comments from Bill English)