Treasury reports budget deficit of NZ$1 bln was NZ$381 mln better than forecast on higher GST and corporate tax receipts

By Bernard Hickey

Better than expected tax revenues in December have pushed the Governments books closer to its long promised surplus in 2014/15, although Finance Minister Bill English remains cautious about turning around the current forecast for a NZ$572 million deficit into a surplus by October.

Treasury reported the Government's Operating Balance before Extraordinary Gains and Losses (OBEGAL) deficit of NZ$1.0 billion for the six months to December was NZ$371 million better than forecast in December because of stronger than expected GST and corporate tax receipts.

"Although GST was NZ$132 million higher than forecast, indicators for domestic consumption through the December quarter look to be weaker than forecast, suggesting this positive variance may not persist. However, the outlook for other tax types such as source deductions (PAYE, GST and corporate taxes) is more positive, signalling some upside risk going forward," Treasury said.

Corporate tax was NZ$124 million higher than expected and customs and excise duties were NZ$46 million above forecasts because tobacco imports have been larger than expected in the face of a big tariff hike on January 1.

"The 15% year‐on‐year growth in total tobacco excise to December is unlikely to be sustained through to June, but there continues to be some small upside risk to the full‐year forecast," Treasury said.

Core Crown expenses were NZ$90 million below forecasts, although NZ$67 million of that was from lower treaty settlements. The higher than expected tax revenues were partly offset by a NZ$97 million increase in the earthquake claims liability of Southern Response, the Government-owned 'bad' insurance arm inherited in the Government's bailout of AMI.

English hopeful of surplus

English was cautious though about declaring victory in the Government's quest for a surplus in the current 2014/15 year. The half year forecasts in December were for a deficit, but the Government said then it expected a surplus by the time the accounts were finalised in October.

"Although GST and corporate tax were both ahead of forecast for the six months to December, these latest figures underscore the difficulty in forecasting the difference between two large numbers. It remains to be seen whether the higher-than-expected growth in revenue continues through the rest of the financial year," English said in commenting on the latest Crown accounts.'

"The Government still considers that the strong economy and responsible fiscal management can deliver a surplus when the final accounts are published in October. The smaller than expected OBEGAL deficit reinforces that message," he said.

English said the Government continued to manage its finances responsbly, saying spending was NZ$4.1 billion lower than the Government originally forecast in 2011 when it set its budget surplus target.

"The challenge is coming from revenue, which the Government has much less control over," he said.

'One dollar Bill'

Yesterday in Parliament, English was challenged by Labour Finance Spokesman Grant Robertson over the prospect of a 'meaningful' surplus in 2014/15.

English agreed that any surplus, even if it was just NZ$1, would be "meaningful", but noted it would be difficult and could take two years.

"I can report that from a large deficit of around NZ$18 billion, current forecasts have us headed towards surplus over the next 2 years," he said.

Robertson promptly labelled English "One dollar Bill".

"A One Dollar Bill surplus would be a joke if it wasn’t such a bad pun," Robertson said.

A video of the exchange in Parliament is above.

(Updated with more detail, chart, video)