Higher than expected tax revenue and lower than forecast core expenses push govt's 7-month surplus to $1.145 bln, well above expectations

Treasury has released the Government's financial statements for the seven months to January 31. Here's the full statement.

Financial Statements of the Government of New Zealand for the seven months ended 31 January 2017 

The Financial Statements of the Government of New Zealand for the seven months ended 31 January 2017 were released by the Treasury today [Tuesday]. The statements are compared against forecasts based on the 2016 Half Year Economic and Fiscal Update (HYEFU) published on 8 December 2016. 

The operating balance before gains and losses (OBEGAL) was a surplus of $1,145 million, compared to a forecast surplus of $442 million. This favourable variance of $703 million was largely due to the higher than forecast core Crown tax revenue and lower than forecast core Crown expenses. 

Core Crown tax revenue was $291 million (0.7%) higher than forecast for the seven months ended 31 January 2017. Corporate tax was the largest driver of this favourable result with revenue being $378 million ahead of forecast. This increase was across both provisional and terminal tax indicating that profits in 2016 tax year were higher than forecast and that this has continued into the 2017 tax year. This favourable result was partially offset by GST revenue being $138 million (1.2%) lower than forecast. Economic indicators point to below-forecast growth in domestic consumption and residential investment in the December quarter. 

Core Crown expenses at $44.2 billion were $338 million (0.8%) lower than forecast. The majority of this variance relates to forecast expected costs in relation to the Kaikōura earthquakes which have yet to be quantified with enough certainty to include in the actual results. Over time, as reasonable estimates are able to be made, these costs will be recognised in the actual results, reducing the variance. 

Net gains at $6.5 billion, were $3.3 billion higher than forecast in the seven months to 31 January 2017 primarily relating to an actuarial gain of $3.3 billion ($3.0 billion higher than forecast) on the ACC liability. Net gains combined with the OBEGAL surplus, resulted in an operating balance surplus of $7.8 billion ($4.0 billion higher than forecast). 

Net worth attributable to the Crown was $4.1 billion ahead of forecast largely owing to the operating balance result. 

Core Crown residual cash was close to forecast at a surplus of $555 million resulting in core Crown net debt at $61.7 billion (24.1% of GDP) also being close to forecast. However, gross debt was $1.8 billion lower than forecast largely as a result of increased repurchasing of government stock.

And here's what Finance Minister Steven Joyce had to say.

Seven month surplus better than expected

The Government’s books are better than expected, with a $1.1 billion OBEGAL surplus for the seven months to January, Finance Minister Steven Joyce says. 

“Stronger tax revenues as a result of a healthier economy are flowing through to the Government’s financial performance,” Mr Joyce says. 

Tax revenues year-to-date are 3.8 per cent more than they were predicted to be in Budget 2016.  

“Company tax in particular is higher than expected, and that reflects the good performance of New Zealand companies in what is still an uncertain world,” Mr Joyce says. 

The $1.1 billion OBEGAL surplus compares to Treasury’s forecast of a $517 million surplus at the start of the fiscal year. 

Core Crown expenses for the seven months to January were $234 million lower than the Budget forecast, reflecting the Government’s ongoing commitment to prudent spending. 

Mr Joyce says that a number of variables made the final out-turn for the full financial year hard to predict. 

“The biggest variable at this stage is the cost of the Kaikoura earthquake and how those are allocated between this year and next year,” Mr Joyce says. 

“The good news is that this Government’s strong economic management means we can afford to step in to help these communities and support them when they are most in need.”