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Crown's tax take improves in Feb, but still 2.3% below forecast for first 8 months of financial year

Posted in News Updated
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The government's core tax take in the eight months to February was 2.3% below what it had forecast in October, although this was an improvement on the 2.9% gap seen in January.

The figures come after Prime Minister John Key and Finance Minister Bill English said this week the government was likely to run a 'zero budget' again this year, which would see them strip away a previously-expected NZ$800 million increase in the government's operating allowance for the next year.

A softer-than-expected tax take for the current year was one of the reasons for cutting the planned increase in the operating allowance, as labour market conditions remained worse than expected, GST refunds were higher than forecast, and the corporate tax take was down due to weaker profitability. 

Rising costs stemming from the Christchurch earthquakes, and a weakening prospects among New Zealand's major trading partners were also reasons for the need for a zero budget, Key said on Monday.

The latest set of government accounts, showing revenue and expenses through the current financial year, showed the government's operating balance before gains and losses (OBEGAL) was a deficit of NZ$5.5 billion in the eight months to February. That was NZ$395 million, or 7.7% larger than what Treasury had expected in its October pre-election update.

Core Crown expenditure was NZ$1.4 billion below forecast during the eight months, offset by core Crown revenue which was NZ$1.2 billion below forecast. 

"In addition, since the PREFU there has been an increase in EQC’s expenses, net of reinsurance, of NZ$500 million following a revision of its estimated liability in relation to the Canterbury earthquakes. Most of the increase (NZ$450 million) related to the 23 December 2011 earthquake ‐ NZ$290 million of this was first booked in the 31 January Financial Statements published last month," Treasury said in the accounts.

The lower‐than‐expected core Crown revenue was primarily due to core Crown tax revenue (NZ$35.4 billion) which was NZ$825 million, or 2.3%, lower‐than‐forecast, an improvement from the NZ$946 million variance last month. However, the three main tax‐types continued to be below forecast. The specific drivers were:

  • Source deductions ‐ NZ$200 million below forecast as the labour market and employment and wage growth have been weaker than expected.
  • GST ‐ NZ$369 million below forecast because earthquake‐related insurance refunds continued to be above forecast. However, the GST base (excluding these refunds) was close to forecast.
  • Corporate tax ‐ NZ$193 million below forecast as business profitability was weaker than expected.

"February’s year‐to‐date tax revenue result is consistent with expectations that full‐year tax revenue will be below PREFU forecasts, as indicated in the Budget Policy Statement released on 16 February 2012," Treasury said.

Core Crown expenses of NZ$45.2 billion were 3.0% below forecast. The lower than forecast expenditure was either offset by similar reductions in revenue, or a result of delays in expenditure, Treasury said.

"While the OBEGAL deficit was NZ$395 million higher than forecast, the operating balance deficit at NZ$8.8 billion was NZ$1.3 billion (16.5%) higher than forecast," Treasury said.

"In addition to the OBEGAL result, higher than forecast actuarial losses on the Government Super Fund (NZ$1 billion) and ACC liabilities (NZ$329 million) contributed to the variance. The actuarial losses were partially offset by losses on investment portfolios across the Crown being NZ$629 million lower than forecast due to a rebound in global equities in February," it said.

The residual cash deficit and net debt were largely in line with forecast. Net debt at the end of the eight months was NZ$49 billion (24% of GDP).

'Quake costs'

Finance Minister Bill English said in a media release that an updated valuation of estimated Canterbury earthquake costs – including NZ$450 million relating to the quake on 23 December 2011 – was reflected in the Government’s accounts for the eight months to February.

"Combined with core Crown expenses remaining significantly below forecast, and core Crown tax revenue continuing to track below forecast, the extra earthquake costs left a NZ$5.5 billion operating deficit before gains and losses in the eight months," English said.

“This is about NZ$395 million higher than the NZ$5.1 billion deficit forecast in the Pre-Election Update last year. These extra cost estimates from the earthquakes are outside our control, but it reinforces the need to remain focused on things we can influence, such as government spending," he said.

“So we will have to remain disciplined to meet the challenging goal of getting back to surplus by 2014/15, when we can start repaying debt.”

English said the main reasons for the difference in the OBEGAL deficit reported for the eight months to February and the Pre Election Update forecast were costs of the 23 December earthquake and an updated actuarial valuation of the Earthquake Commission’s insurance claims liability.

"The estimated cost of the earthquakes has increased by about NZ$500 million, net of reinsurance. Of this, about NZ$450 million related to the 23 December earthquake (around NZ$300 million was estimated in the Budget Policy Statement and the January financial statements), and the remainder reflected an actuarial update," he said.

“These earthquake cost estimates will continue to be updated as more information becomes available. But I’m encouraged that we’ve kept core Crown expenses NZ$1.4 billion below forecast at NZ$45.2 billion for the eight months to February. As we move towards the Budget in May, this discipline around spending will remain our strong focus.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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26 Comments

Does any NZ taxpayer get the

Does any NZ taxpayer get the fact that 'getting back to surplus" means taxing the crap out of YOU! the taxpayer?
They have no plan, no ideas other than just screwing YOU
 
The IMF have made this quite clear to the NZ government, "do it (austerity via stealth) or your credit will disappear"

Yep....though some ppl dont

Yep....though some ppl dont pay any tax....not unless we bring in a CGT.
and I think by 2014 if (when) we are not seeing a balanced budget then JK will I assume be toast.....and in comes Labour and in comes a CGT....though its another assumption that ppl will be asking why others pay no or little tax and start to insist on changes.
Im not sure on the context of your comment on the IMF.  Are you saying the IMF is saying do it or else, or are you saying that the IMF is saying if you do not someone will make you?
For me its the latter...
regards
 
 

Yep....though some ppl dont

Yep....though some ppl dont pay any tax....not unless we bring in a CGT.
You know you say some really dumb things in here at times, Steven, but that pretty much takes the cake. I am astounded at the fantasy world you inhabit, and your total lack of any insight into that. Do you actually work in paid employment? You are in here at all hours all day and every day which leads me to believe that you aren't. What is it exactly that you do?

Some people do NOT pay any

Some people do NOT pay any tax David since they get all the tax they pay back in benefits and subsidies like WFF and KS. Surely you know this? 
Go easy, everyone has a right to their point of view

Heard of GST?

Heard of GST?

Yes, consumption tax

Yes, consumption tax included. Do you remember why GST was introduced and the promise of it being a temporary measure?
Everyone pays consumption tax even on your rates and levies like ACC cause you have too. kind of cancels out the 'them and us' claim
Income tax however is negotiable depending on what lifestyle you wish to lead

I don't remember it being

I don't remember it being introduced as a temporary measure?? I always thought it was going to be permanent? It was brought in by Roger Douglas as part of his economic reforms. I do remember Lange on TV trying to sell it to the country on the basis that it was a fair tax in that everyone had to pay it. You couldn't avoid it and this for him was one of its strengths. Normal income tax could be minimised in any number of ways, and the usual old Labour beef was that 'rich' individuals were avoiding paying their 'fair-share' of tax by using various tax avoidance mechanisms, even though the top tax rate back then was 66%.  GST would in part put a stop to that avoidance. That argument aside, it is a very real tax and we all pay it.
 
No one in NZ pays no tax at all, as Steven claims.  It just doesn’t work like that. That is not the nature of the world in which we live.

DavidB: Your recollection is

DavidB: Your recollection is correct. It was permanent. Roger Douglas's selling point was this. When marginal tax rates are 66% the best investment ever is a legitimate "tax avoidance scheme" which has an immediate ROI of 66%. Douglas reckoned there were too many tax accountants and tax-lawyers and the tax-avoidance industry was massive. People forget how big it was. He was determined to kill it off.

huh?  some  ppl make money

huh?  some  ppl make money based buying and selling shares and  property....it is un-taxed gain, it is really that hard for you to understand? oh wait it would be par for the course.
What I do really doesnt concern you.
regards
 

So you don't work then. I

So you don't work then. I think we have established that before. This is not America, Steven, or the UK. There are very few people in this country that can fund their annual income solely through capital gains. The size of our capital markets doesn't allow it. If you are a regular trader on the stock exchange for example, then you pay tax on any capital gains. If you own shares in international markets, you pay tax on the value of your annual holding if it’s over 50k. If you buy and sell houses in NZ, then you also pay a capital gains tax. But of course, there have been very few capital gains in NZ house prices over the last 5 years except in a few suburbs in Auckland and lately in Christchurch. And then of course there is GST which we all pay and is unavoidable.
But if you want to make that claim then it’s your responsibility to substantiate it with facts, numbers. And you haven’t done that because you can't. Rather you have just plucked them out of your ar%$.

No as in I was talking about

No as in I was talking about the "front end tax", eg PAYE, not GST...I think the term is, you are being pedantic.........but OK I should have used "little" or not their fair share instead, if it gets you off.
For instance,
1) lets look at say farmers some of whom apparantly load up with debt to, a) avoid paying tax and b) collect WFF....then when they retire do so tax free as the is no CGT as they are not a dealer......
or,
2) some of the ppl I know who are booking losses on income from rentals and reducing thier PAYE while aiming to make a tax free gain on sell up....
regards
 

The latter

The latter

K, thanks, yes....in the past

K, thanks, yes....in the past the IMF has been pretty forthright in its quite neo-classical free market views....these days its tone seems considerably different...
One thing I do not agree with Paul Krugman on is that debt (for the US at least) is not an immediate issue....I think when it does become an issue there will be no time to act.....just looking at the graphs of bond rates for Greece and italy shows it happens over a few months, way to fast for a govn to do a thing...NZ has to keep that in mind...I se no easy course to steer....
regards
 

Justice, the problem is

Justice, the problem is increasing the tax take is not going to work. All my friends and aquaintances are in full reverse. Im in the process of an attempt to half my power bill. Any increase in taxes will result in lower economic activity, the idiots running us have no where to  go except to try and save themselves, by slashing  spending on the minions but that wont work either. Im determined to win my battle, im going to cut spending and advise others on how to,  the people paying are going to win or go down in flames. 
 I have a friend who lives in Fielding, in a two bedroom house, his rates are $2700 pa and so is his power bill, thats a huge chunk of his pension, I think the single person pension is just over 18k.  And the power bill is going up another %10 soon?  

I agree with you but they

I agree with you but they (government) can always pull out their ace card, new taxes. Whether via stealth by encourging your power supplier to increases prices or super markets etc.
Surplus to them is just about the governments books, not the private citizens. You could be starving on the street and English/Key will still come out smiling saying "we reached our target" and you know what? People will still vote for em

I have a friend in the

I have a friend in the propery business, his latest feat of engineering wealth, is to line and wire all the garages on his properties so (unofficialy) they can be used as rooms for family, who have no job, no money and no where to go. Of course they get the accomodation benefit so its not all bad news for my friend. Eventually you get to the bottom of the barrel, trying to take more and more from a barrel economists tell us is bottomless but anyone with half a brain can see it's about an inch away.
 I have no doubt property taxes are on the way especially for second homes, an easy target' not the sort to vote for labour so its a kind of win win for national but the bottom of the barrel is coming up fast. Time for hard hats is upon us. We all need to get our affairs in order, its what the last few years have been about, The governments and Bernake giving their mates some time to get things in order.
 
http://kunstler.com/blog/2012/04/unthinkable.html

"The governments and Bernake

"The governments and Bernake giving their mates some time to get things in order.'
 
Would that happen to be lowering debt via mass inflation?

worthLESS cash from insurer's

worthLESS cash from insurer's to rebuild a destroyed city is NOT "new growth". Maybe when you use the dubious fraudalent economic figure called GDP it might but anyone with half a brain knows passing cash back and forth ain't real growth

yep..........and, 1) throw in

yep..........and,
1) throw in the impact of loss of "old" jobs in chch on gdp.....which even with new building will probably never come back.....
2) the high costs of of re-insurance....bet that boosts GDP but really its a loss of disposble income/wealth....as it leaves NZ...
regards
 
 
 
 

agreed

agreed

Just for those who still

Just for those who still believe that the Chch earthquake/rebuild is good for GDP.
"The Broken Window Fallacy": Why Government Stimulus Spending Will Keep The Unemployment Rate High

My 2cents, I really dont

My 2cents, I really dont think much of that cartoon,  might even go so far as to say that piece I think is real cwap(TM).....as I would have said that was classic voodoo economics, or crowding out "theory"  or simplistic...whatever.
The point of Govn spending in a liquidity trap is to spend when no one else will.....
Also the cost of labour from public works can be considered marginal.  So by that I mean I could pay an un-employed construction worker via the DPB/WINZ  or I could get him to build a new hospital and he gets a wage.....its the NET cost between the WINZ $s and the wage $s that is the actual cost, 
We then of course get a public good.....  Buying  consumer goods "excessively" is also of questionable benefit to the country, imports, environmental damage etc....where a needed hospital doesnt appear to be.....bridges to nowhere excepted......
The cartoon also considers a closed cycle, when in fact for chch re-insurance is money coming in, or returning (depending on your point of view)....It is also keeping construction workers off WINZ, however the NET job position is unkown? ie the numbers of general workers who have lost their jobs due to the earthquake v the number of construction workers who have gained.
regards
 
 
 
 

Giving NZ police a mobile

Giving NZ police a mobile will improve public safety? 
LOL!

it doe'sn't matter how much

it doe'sn't matter how much tax we take in it will never be enough as long as govt give out rent subsidies.working for families'tax creditsand super for everybody at 65 etc.
time to bust open some of these trusts that earn plenty but don't pay tax.
tim
e to review rest home subsidies for people with their wealth hidden away in a trust.
thats just the beginning.

ya see now Alex...I told you

ya see now Alex...I told you no good would come of  promoting Quitline....!
and now we'll all have to pay.

Isn't this the same English

Isn't this the same English Key who are responsible for the largest deficits in NZ history?  Talking about a surplus, you gotta be joking right?  Poor buggers who are relying on the govt for an income are going to get it in the neck.  I wouldn't count on tax hikes, unless they are regressive like GST or irrelevent like a CGT.