Crown operating deficit smaller than forecast on higher income tax

The government had a smaller operating deficit than expected in the first eight months of the financial year as it took in more tax from source deductions and income tax than it had forecast.

The operating balance before gains and losses (obegal) was a deficit of $3 billion in the eight months ended February 28, 16 percent smaller than forecast in the December half-year economic and fiscal update.

Core Crown tax revenue was $37.6 billion in the first eight months of the year, which was $719 million, or 2 percent higher than forecast. Source deductions were $266 million above forecast, which Treasury says shows underlying strength in the economy.

Employment and wages data also showed that while aggregate labour incomes were close to forecast, employment was lower, especially for those at the low end of the income scale.

The net effect was that the same amount of income was earned by fewer workers, lifting the average tax rate, Treasury says. Other individuals' tax was $326 million above forecast.

Core Crown expenses of $45 billion were $370 million, or 0.8 percent below forecast. Some $207 million of that reflected delays in finalising Treaty of Waitangi settlement issues. The New Zealand Aid programme was $96 million below forecast, the Ministry of Business, Innovation and Employment underspent by $91 million, the Ministry of Education underspent by $64 million and the Ministry of Health underspent by $57 million.

"Government spending remains under control," Finance Minister Bill English says. "That is important as we remain on track to surplus in 2014-15."

The Crown's operating balance was a surplus of $4.3 billion in the eight-month period, some $4.8 billion ahead of forecast, largely reflecting net investment gains of $1.5 billion for the New Zealand Superannuation Fund and $600 million for the Accident Compensation Corp.

It also benefited from higher-than-expected actuarial gains on ACC's outstanding claims liability of $1.5 billion.

The government's net debt at $57.7 billion, or 27.6 percent of gross domestic product as at February 28, which was 1.1 percent below forecast.

(BusinessDesk)