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Government operating deficit bigger than expected as tax take lags

The New Zealand government posted a bigger operating deficit than forecasts in the May Budget, as company tax and GST again lagged expectations.

The Crown's operating balance before gains and losses (obegal) was a deficit of $1.1 billion in the 11 months ended May 31, smaller than the $3.27 billion shortfall a year earlier, though more than the $767 million deficit forecast in the Budget economist and fiscal update. Core tax revenue was up 4.6 percent from a year earlier, though $459 million short of expectations at $56.5 billion, with goods and services tax was lower than forecast on more subdued domestic consumption. The company tax take was below forecast due to some large downward adjustments in end of financial year assessments.

"It is too early to determine the likely impact of these results on the current and future financial years as both downside and upside risks exist," acting chief government accountant Fergus Welsh said in a statement. The Treasury will update its forecasts in the pre-election economic and fiscal update on Aug 19.

In May, Finance Minister Bill English confirmed a return to Budget surplus in the 2015 fiscal year at $372 million, wider than the $86 million projected in the half year economic and fiscal update, with bigger surpluses projected after that as an accelerating economy helps bolster the government's books.

The accounts show Crown expenses were $36 million below forecast at $64.17 billion at the end of May, with underspending across a number of departments, the biggest of which was at the Ministry of Business, Innovation and Employment. Core spending was up from $63.74 billion a year earlier.

The residual cash deficit narrowed to $3.83 billion from $5.58 billion for the same 11 month period in 2013, though was $398 million below forecast due to the lagging tax take.

Net debt was $453 million ahead of forecast at $59.47 billion, or 26.2 percent of gross domestic product, while gross debt was below forecast at $82.15 billion, or 36.3 percent of GDP.

The operating balance, which includes movements in the Crown's investment portfolio, was a surplus of $4.33 billion, $165 million below forecast, and smaller than the $6.48 billion surplus at the same stage of the previous fiscal year. Gains in the value of its equity investments were offset by an increase in the Accident Compensation Corp's insurance liability.


Comments and questions

Lets take a look at our very generous welfare for everyone approach.

A 3 year programme to eliminate Working for Families would be a good start.

Okay Einstein how will they survive then?

Selective in the good old days prior to the introduction of welfare 1930's when each family took responsibility to look after their own.

They will survive by making decisions relating to their personal circumstances. Some working for families programmes involve people already earning $100,000.

This is pure vote buying.

We have built a massive expectation that welfare is a way of life with the exception of disabled and elderly. We have more of our population consuming taxation via transfers than we have generating it.

NZ can go nowhere unless we role these expectation back.

John Key was elected to start rolling back the transfer programmes. He has only tinkered around the edges.

Thats being a clever politician, not a leader.

We do not have a deficit problem but a massive expenditure problem. Holding onto the vote buying social programmes is not the way for NZ.

Just a dream but imagine a system where each year as part of your tax return, you could stipulate how your tax is to be allocated to areas of government expenditure. That way no matter which party or parties are in government, the government is mandated to allocate the tax revenue as per the wishes of each tax payer. So those who are socialists can put all their tax into welfare and propping up others and those of us who are capitalists can invest in areas that we believe will increase the productivity of the economy. That might change the 44% of GDP currently spent on welfare and health.

Look at the countries in massive financial trouble, Italy,Greece, Spain. High taxes and redistribution programmes,strong socialist programmes.
Guess who is expected to bail them out. Germany and other capitalist countries. France has a government sector approaching 60% of GDP, an impossible situation.
NZ is pretty good but we still have to roll back the transfers. The MMP system keeps us in trouble because no tough decisions ever get made. To make any change is political suicide. Thats why we have borrowed to continue WFF,Interest free loans and now.PPL.