Treasury reports budget deficit $400 mln higher than expected five months into the financial year

The Crown finances were some $400 million worse than expected for the five months ended November, according to figures released today.

Treasury said that the operating balance before gains and losses (OBEGAL) was in deficit by $2.3 billion, which was around $400 million more than expected, mainly due to lower core Crown tax revenue.

"At this stage, our assessment is that the majority of this variance is timing in nature and will reverse out in coming months," chief financial officer Fergus Welsh said.

The statements are compared against forecasts based on the Half Year Economic and Fiscal Update (HYEFU), released on 17 December 2013.

Following on the trend in recent months, continued strength in equity markets saw gains recorded on financial instruments of $2.8 billion, which was $2.0 billion ahead of forecast. As a result, the operating balance surplus was $1.6 billion higher than forecasts at $2.3 billion.

Both residual cash and net debt were close to forecast.

The November financial statements include the partial share sale of Air New Zealand. The sale raised $365 million in gross proceeds for the Crown and resulted in a gain on disposal on its investment of approximately $52 million. When ACC and NZS Fund’s investments are removed, the estimated gain on disposal reduces to $46 million.

Finance Minister Bill English said the financial statements reinforced the need to remain focused on disciplined fiscal and economic policy. This was his statement:

Lower core Crown tax revenue than forecast in the Half-Year Update last month left the operating deficit before gains and losses at $2.34 billion for the five months.

This was about $400 million larger than forecast, although the Treasury believes most of this revenue difference was due to timing issues and will reverse out in coming months.

“We remain on track to surplus in 2014/15, but, as we have said many times before, this remains quite a challenge,” Mr English says.

“In particular, we need to remain focused and disciplined and now is certainly not the time to get loose with spending and fiscal policy – as some political parties are advocating.”

The latest financial statements confirm core Crown expenses are close to forecast at $29.2 billion and net core Crown debt is slightly lower than forecast at $59.6 billion.

Continued strength in world sharemarkets generated gains on Crown financial instruments of $2.8 billion in the five months, which was $2 billion ahead of forecast. This left the operating surplus $1.6 billion larger than forecast at $2.3 billion.

“Overall, we are making good progress in putting the Government’s finances on a stronger footing and in getting back to surplus,” Mr English says. “It will require responsible fiscal management well beyond our return to surplus – something this Government is committed to delivering.”