Budget deficit better than forecast due to extra GST day

The New Zealand government's actual operating deficit before gains and losses in the five months to November was NZ$0.7 billion better than forecast in Treasury's Half Year Economic and Fiscal Update released in December. Core crown tax revenue was NZ$0.3 billion higher than expected, while core crown expenses were NZ$0.3 billion lower than expected, Treasury said. However, the better than expected deficit of NZ$3.7 billion (vs NZ$4.4 billion forecast) came as a result of higher than expected GST revenue due to an extra day available to attribute and process GST in November, Treasury said. The extra day was not included in the half year forecast and the variance is expected to largely reverse in coming months, Treasury said. The accounts are reproduced below. Corporate tax revenue was also NZ$0.1 billion (7%) higher than forecast mainly due to provisional tax assessments that were filed earlier than expected from taxpayers utilising tax pools, Treasury said. Treasury also noted that: "while Inland Revenue has settled its disputes with four major banks in relation to structured finance transactions, no adjustment for additional tax revenue (above the NZ$1.4 billion recognised in the 2008/09 financial year) has been made in the November results. We expect the December results (to be published on 19 February) to include any resulting revenue adjustment." "Bringing in the impact of gains and losses, the operating balance deficit was NZ$1.1 billion lower than forecast. Net gains were NZ$0.4 billion higher than forecast mainly due to gains on the Crown's investment portfolios (NZ$0.7 billion). The favourable operating balance variance flowed through to net worth, which was NZ$0.9 billion higher than forecast," Treasury said.

The NZS Fund, ACC and EQC reported gains on their investment portfolios that were $533m, $124m and $92m higher than forecast (respectively). These figures are on an individual entity basis and include inter"entity transactions; and The RBNZ reported lower than forecast net losses on financial instruments of $112m. This was mainly due to lower than expected foreign currency losses on marketable securities. These favourable results were partly offset by: ACC reported a year"to"date actuarial loss of $96m. This was mainly due to a reduction in the rate used to discount ACC's insurance liability.

Gross debt was $2.6 billion lower than forecast mainly due to: Treasury bills were $1.6 billion lower than forecast because market conditions meant maintaining Treasury Bill issuance below forecast levels was cost effective. The Government bond market (an alternative source of funding) was strong. This variance was net debt neutral because the lower holdings of liabilities were offset by (corresponding) lower holdings of financial assets; and RBNZ's unsettled trade liabilities and NZDMO's third party collateral deposits were lower than forecast ($0.6 billion and $0.5 billion respectively). These transactions fluctuate and are net debt neutral. In contrast, net debt was close to forecast at $22.7 billion (12.3% of GDP) as the factors driving the gross debt variance had a neutral impact on the net debt position.