Slump in tax revenues drags budget balance NZ$1.1 bln lower (updated)

Crown accounts released by Treasury show core Crown revenue for the six months ended December 31 was NZ$1.185 billion lower than forecast, and that core Crown expenses were NZ$171 million higher than forecast. (Updated to include comparisons with 2007.) The decline between forecast revenue and actual revenue was mainly attributable to lower than expected tax receipts from corporates and lower GST receipts, Treasury said. The figures reinforce the scale and speed of the deepening economic recession and the likely fallout on the government's finances. The government has already started borrowing heavily in anticipation of large deficits over the next decade. These numbers will be closely watched by Standard and Poor's, which is reviewing New Zealand's AA+ sovereign credit rating. S&P has warned that New Zealand's rating could be downgraded if the budget deficit and government borrowing worsen markedly in coming months.  Corporate tax revenue was NZ$0.5 billion, or 11.9%, below expectations due to lower"than"expected final profits generated in previous tax years, Treasury said. "We expect that the corporate tax shortfall will persist through to the end of the 2008/09 fiscal year and through to the 2009/10 fiscal year, as the effects of the recent worldwide economic downturn flow through to New Zealand firms' profitability," Treasury said. GST revenue was NZ$0.37 billion, or 6.2%, lower than forecast. The Operating Balance excluding Extraordinary Gains and Losses (OBEGAL) was a surplus of NZ$98 million in the six months of the fiscal year to date, more than NZ$1.1 billion less than the NZ$1.201 billion forecast before the election. The New Zealand Super Fund gave a better return in December than in November, returning 1.47% on investments compared to -5.04% the month before. The better performance was generally out down to the positive performance of global equity markets in December, Treasury said. Core Crown expenses rose 8.5% to NZ$30 billion in the six months to December 31, 2008 from the same period in 2007. This comprised of a 9.7% rise in health spending to NZ$6.1 billion; a 9% rise in education spending to NZ$5.2 billion; and a 6.6% rise in social security and welfare spending to NZ$9.4 billion. Spending on core government services rose 9.1% to NZ$1.6 billion. Core Crown revenue in the half year to December 31, 2008 rose 0.5% to NZ$29.6 billion from the same period in 2007. Taxation revenue, at NZ$27.1 billion, was 0.3% lower than in the six months to December 31, 2007. Other revenue (NZ$2.5 billion) was up 9.5%. See the full crown accounts here.