Government's five-month deficit bigger than expected as tax take falls

The government's operating deficit was wider than expected in the first five months of the financial year as the corporate and income tax takes were lower than forecast, in what Treasury officials said were largely timing issues.

The operating balance before gains and losses (obegal) was a deficit of $1.62 billion in the five months ended November 30, larger than the $1.24 billion shortfall predicted, and 5.2%  larger than the $1.54 billion deficit a year earlier, according to the government's financial statements.

While the Crown's spending was in line at $30.53 billion, tax revenue was $212 million below forecast at $26.37 billion, though still up 3.4%  from a year earlier. Of that, the corporate tax take was $167 million below expectations, largely because of provisional tax, though about a quarter of that was down to timings in the December half-year economic and fiscal update's forecast assumptions. Source deductions were $110 million below forecast, with the November seasonal decline larger than expected and predicted to reverse in the coming months.

The Treasury predicts the Crown's obegal will slip back into deficit in the 2016 financial year before returning to smaller surpluses further out as tepid inflation and a lack of wage growth keeps taxes flatter than expected. Finance Minister Bill English has relaxed his focus on avoiding red ink, saying he won't distinguish between small surpluses or deficits in the immediate future.

The Crown's residual cash deficit of $3.07 billion was largely in line with expectations and smaller than the $3.24 billion shortfall a year earlier. Tax receipts were ahead of expectations, which the Treasury said was probably due to tax pooling arrangements, while capital payments came in ahead of forecast.

Net debt was in line with expectations at $63.5 billion, or 26%  of gross domestic product, while gross debt at $86.66 billion, or 35.5%  of GDP, was above forecast.

The operating balance, which includes movements in the Crown's investment portfolios, was a deficit of $497 million, smaller than the $1.93 billion predicted, due to a bigger than expected actuarial gain on the Accident Compensation Corp's future liabilities. That's expected to partially reverse in December. The operating deficit was $1.31 billion a year earlier.

The Crown's net worth was $85.86 billion at the end of the period, ahead of the $84.52 billion forecast, with $276.1 billion of assets and $184.6 billion of liabilities.

(BusinessDesk)

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