Crown accounts show OBEGAL deficit of $768 mln for five months to November versus forecast of $1.704 bln deficit; tax revenue higher than expected; expenses lower than expected

The business of New Zealand Inc is continuing to look healthy, with Crown finances performing much better than expected so far in the current financial year due to higher than expected tax revenues and lower than expected expenses.

With the financial position in the first five months of the current year nearly $1 billion better off than the most recent forecast, this suggests the Government may do quite a bit better than the $473 million surplus forecast in December for the June year.

Here's the official statement from Treasury:

The Financial Statements of the Government of New Zealand for the five months ended 30 November 2016 were released by the Treasury today.

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 deficit of $768 million for the five months to 30 November 2016, compared to a forecast deficit of $1,704 million.

This favourable variance of $936 million was largely due to core Crown tax revenue being higher than forecast and core Crown expenses being lower than forecast. Core Crown tax revenue at $28.8 billion, was $460 million or 1.6% higher than forecast and $2.5 billion (9.4%) higher than for the same period last year. GST revenue was $252 million (3.3%) above forecast and corporate tax revenue was $87 million (2.5%) above forecast. It is currently too early to know if these variances are timing in nature or will be permanent.

The preliminary estimated fiscal cost of the Kaikōura earthquakes is expected to be between $2 billion and $3 billion. As a result, $1 billion was added to the HYEFU 16 forecasts in relation to estimated costs that could not be met by insurance proceeds, reprioritisation or existing budget allowances. An initial estimate of EQC claims costs has been included in the November results, but a number of other costs are currently too uncertain to recognise in the actual results.

Over time, as reasonable estimates are able to be made, we expect that these costs will be recognised and included. As a result, Core Crown expenses were slightly under forecast, at $31.7 billion.

Net gains were $5,358 million ($2,550 million higher than forecast), mostly as a result of a decrease in the ACC claims liability due to an increase in the discount rate used to convert future cash flows into present day dollars (resulting in an actuarial gain of $3,468 million).

Net gains combined with the OBEGAL deficit resulted in an operating balance surplus of $4,692 million, $3,483 million higher than forecast. The higher surplus largely contributed to net worth attributable to the Crown being $3,484 million ahead of forecast.

Core Crown net debt and the core Crown residual cash deficit were close to forecast. Gross Debt however, was $1,057 million lower than forecast as a result of increased repurchasing of government stock.