Govt finances in better position than expected in May Budget due to higher corporate and GST tax take; ACC losses blow out operating deficit

The Government's books are in a better position than expected in the May 2012 Budget due to higher corporate and GST tax takings, Treasury says.

Releasing the Government's financial statements for the eleven months to May 31, Treasury said while the operating balance before gains and losses (OBEGAL) deficit "remains large," at NZ$5.9 billion, it was NZ$1.1 billion or 16.0 % lower than forecast.

"This positive difference was due to tax revenue for the 11 months to 31 May being higher than forecast and core Crown expenses being below forecast," Treasury said.

"Core Crown tax revenue was NZ$667 million or 1.3% higher than expected. The two main components were corporate tax and GST, at NZ$389 million and NZ$192 million more respectively," it said.

In a similar trend to last month, the difference in corporate tax continued to relate to terminal tax assessments and Portfolio Investment Entity (PIE) tax both being approximately NZ$200 million higher than Budget estimates.

"Corporate tax is now expected to remain above forecast through to the end of the 2011/12 fiscal year," Treasury said.

"GST was ahead of forecast to 31 May with private consumption higher than expected. Core Crown expenditure was within 1% of that forecast at NZ$62.0 billion," it said.

"While the OBEGAL deficit was below forecast by NZ$1.1 billion, actuarial losses on ACC’s insurance liabilities were NZ$1.7 billion greater than expected. Including these losses led to an operating balance deficit of NZ$10.9 billion, NZ$820 million higher than expected."

At 31 May, net public debt stood at NZ$49.6 billion, which was 24.6% of GDP. Gross debt stood at NZ$79.7 billion, or 39.5% of GDP, Treasury said.

Here is the reaction from Finance Minister Bill English:

The Government will continue to responsibly manage its finances and build a platform for stronger growth in uncertain times, Finance Minister Bill English says. 

The Government’s financial statements for the 11 months to 31 May show core Crown tax revenue was $667 million higher than forecast in Budget 2012 and core Crown spending was $431 million lower than forecast.

This led to an operating deficit before gains and losses of $5.91 billion - $1.13 billion better than forecast.

“This is encouraging, but the global environment remains uncertain, leading to a number of fluctuations in the tax take from month to month,” Mr English says.

“This month’s accounts continue to be better than forecast, due to ongoing spending discipline and better than expected GST and corporate results. But revenue is still $835 million below Treasury’s forecast in the pre-election update last October.

“These fluctuations reinforce the need for the Government to keep a firm control on its costs, so it can stay on track to surplus by 2014/15.

“We have seen moderate strength in the economy over the past year despite considerable disruption from global uncertainty.

“Balancing the books and returning to surplus is one of the most important things the Government can do to build that resilience, as well as take pressure off interest rates and the exchange rate. This helps make our economy more competitive.

“That is why we remain committed to responsibly managing the Government’s finances, while at the same time putting policies in place that support a growing economy, more jobs and higher incomes,” Mr English says.