A lower than expected tax take in the five months to November means the government's finances are in a worse position than expected in Treasury's pre election forecast, figures show a day after Prime Minister John Key warned of a lower surplus and noted the possibility of delaying the government's return to the black.
The Crown's operating balance before gains and losses (OBEGAL) was a deficit of NZ$4.477 billion at November 30, NZ$252 million, or 6%, worse than forecast in the pre election fiscal update (PREFU), monthly figures released by Treasury show.
This was primarily due to lower than forecast core Crown tax revenue, which at NZ$21.4 billion, came in NZ$498 million, or 2.3%, worse than expected in the PREFU.
Treasury warned of downside risks to tax revenue for the current financial year to June 30. Forecasts in the PREFU expect a NZ$10.8 billion deficit for the year, although today's warning on tax revenue could mean a new set of Treasury projections to be released on February 16 will show a bigger deficit for the year.
Prime Minister John Key yesterday said new Treasury projections showed the government would return to a NZ$300-500 million surplus in the 2014/15 year. This was down from a NZ$1.45 billion surplus expected in the PREFU.
The government may reconsider its surplus track if global events take a big turn for the worse, Key added.
'Won't be easy getting there by 2014/15'
Following the release from Treasury, Finance Minister Bill English said the figures reinforced the need for ongoing spending restraint and responsible fiscal management.
“The Government is committed to reducing its deficits over the next two years and returning to surplus in 2014/15. This won’t be easy, particularly with ongoing debt problems in Europe reducing forecasts for global growth," English said in an emailed statement.
“However, returning to surplus and repaying debt are among the most important things the Government can do to ensure New Zealand can withstand future shocks and build a more competitive economy based on exports and new jobs," English said.
Costs from the latest Canterbury earthquake on 23 December would be included in the Crown accounts when the Earthquake Commission had measured the financial impact.
The Budget Policy Statement, to be issued on 16 February, will confirm the Government remains on track to post a budget surplus in 2014/15, English said.
“Not surprisingly, given the more subdued global economic outlook, that surplus now looks like being smaller than the NZ$1.5 billion forecast in the pre-election update – at somewhere between NZ$300 million and NZ$500 million," he said.
“As the Prime Minister said yesterday, returning to surplus is important to our plan to limit debt and take pressure off interest rates and the exchange rate."
Tax take down
Treasury said the main tax variances were as follows:
- source deductions were NZ$394 million (4.4%) below forecast,
- GST revenue was NZ$309 million (5.1%) below forecast, and
- corporate tax was NZ$210 million (7.1%) above forecast.
The source deductions and GST revenue variances were mainly timing-related and are expected to reverse; however there was a risk that some of the GST variance may not reverse by year's end.
"While corporate tax revenue was above forecast, which appears to be due to higher than expected corporate profitability, lower third-quarter GDP compared to the PREFU forecast suggests that corporate profitability may be lower than forecast by year end. So overall, there is a downside risk to tax revenue for the current year," Treasury said.
The operating balance (inclusive of gains and losses) deficit at NZ$9.92 billion was NZ$2.83 billion (39.9%) higher than forecast due to actuarial losses on the Government Superannuation Fund (NZ$1.04 billion) and ACC liabilities (NZ$898 million), as well as higher than forecast investment losses (NZ$588 million).
"Gross debt at NZ$72.35 billion (35.6% of GDP) was NZ$888 million lower than forecast due to lower than expected levels of collateral deposits (NZ$1.78 billion) at balance date, partly offset by higher than expected issuances of Treasury Bills (NZ$654 million) due to pre-funding by the NZ Debt Management Office to take advantage of favourable market conditions. As these differences from forecast also have a corresponding impact on the Crown’s financial asset holdings, net debt came in close to forecast at $NZ47.63 billion (23.4% of GDP)," Treasury said.
(Updtates with comments from Finance Minister English)
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15 Comments
Lower tax take due to peasants spending less....because they have less...and those who had savings are being robbed by the banks which have fatter margins bigger profits....and the GST mistake has resulted in a building sector decline across the regions...
Since the world trading activity is winding down fast as evidenced by the Baltic Dry...it is clear the deficit will grow larger...and the govt will be downgraded....and we know what that means for the cost of credit....and we know credit is the only thing this economy has...cos it sure aint savings.
Look to the austerity trap in the UK, because we are rushing to catch them up...it didn't need to be like this....did it!
Outlook: rising unemployment regardless of book cooking. Rising benefit payout totals. Reduced revenue. Bigger hole. More money wasted on churning out spin and BS. To help dig the hole we have councils shoving up rates to pay for the wasteful splurging and fatter salaries. And the insurance mob, out to recoup as fast as possible, the loot they are forced to pay out. Oh and the school boards trying to outdo each other with uniform madness and increased fees...
Treasury claims their models are sophisticated, but I have my doubts. The forecast outcomes are driven by the data Treasury chooses to input - GDP growth in particular.
Other data Treasury used such as projected increases in export prices for dairy products conflicted with both the Statistics NZ data available at the time and Fonterra's forecast payouts.
"Council of Trade Unions economist Bill Rosenberg said spending cuts would add fuel to the possibility of a global recession..............He said the Government should have targeted programmes to create new jobs and revisit options - such as a levy to fund the Christchurch rebuild, and a new tax on high incomes - to increase revenue.".....doh
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10781586
Economist...yeah sure.
Perhaps Rosenberg has yet to crash into the debt mountain...!
Pretty sure the vast majority of readers/posters on this site discussed exactly this scenario in the runup to the election, and now it's panning out exactly as predicted.... Bless the Treasury department they are doing a fine ole job supporting the govt these days!
A key assumption of PREFU was that unemployment would be under 6% at the start of this year, and 5% by end of next year
I've been arguing for a long time that it won't be anywhere near that rosy - that it will be close to 7% by the end of this year, and not much lower next year. This was regardless of the Euro problems
I don't know what that difference would mean in terms of the financial books of govt. but I would have thought 1-2% difference in unemployment would make a big difference
"In an interview with The Daily Telegraph, Dave Hartnett says that householders have a duty to ensure that other people do not evade paying their share of tax.
Paying a builder or cleaner in cash, allowing them to evade VAT or income tax, will result in even deeper government cuts to public services, he says. People who contribute to the cash economy cannot then complain about austerity measures, he adds.
“Tax provides the funding to run the country: hospitals, schools and everything else,” he says. (He didn't mention his fat salary)
“Every time someone pays cash in order not to pay VAT, the nation gets diddled.”
And every time people look at the VAT in the UK or the GST in NZ they say stuff that.
So we see a rise in the DIY mob, the home gardener and the 'bob a job' bloke...and Bill's tax grab bag gets smaller....Hey you don't spose the problem might be the size of the govt grab do you!
Rosenberg makes some good points I think.
We need higher taxes on higher income earners.
We need a land tax.
The govt needs to build more state houses in Auckland. It would generate jobs, help the growing housing shortage there and improve Auckland's competitiveness. The private market simply can't build the houses needed in Auckland, for many reasons.
Stop building new motorways.
Planning reform is URGENTLY needed. Its been on go-slow since the Nats came to power.
GST on all new housing should be reduced to 7.5%
Reduce but not remove WFF
Where is Pagani now?
"French President Nicolas Sarkozy plans to announce tomorrow the value-added tax will be increased by 1.6 percentage points to 21.2 percent, Le Monde reported on its website today, without saying where it got the information."
Hey Pagani...still think NZ should copy French economic policies?
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