By David Hargreaves
The Government has run up a deficit some NZ$449 million more than forecast in the first three months of the new financial year.
However, the overall Crown finances were given a lift by the performance of the New Zealand Superannuation Fund, the investment activities of the ACC and from strong dividends from state-owned enterprises.
The financial statements of the Government for the three months ended September 30 were released by the Treasury today. These showed that the Crown had an operating balance before gains and loses, or OBEGAL, deficit of NZ$2.1 billion, which was some NZ$449 million higher than projected in the 2012 Budget Economic and Fiscal Update (BEFU) released in May.
The shortfall came from both tax and interest revenues being lower than expected. These shortfalls were partly offset by lower core Crown expenses.
Minister of Finance Bill English said the latest Crown accounts "confirm that the Government is keeping its spending under control, but that revenue can be affected by the uncertain global economic situation and its impact on New Zealand. This effect will continue".
Core tax revenue, at NZ$13.5 billion, came in NZ$295 million or 2.1% short of projections. Treasury said that most major types of tax revenue were below forecast. The exception was "other individuals" tax revenue, which was higher than expected.
Core Crown expenditure, at NZ$17.3 billion, was NZ$201 million, or 1.1% lower, than forecast. The most significant under-spending was in welfare, education and finance costs (NZ$86 million, NZ$63 million and NZ$45 million respectively). Offsetting these under-spends were earthquake expenses (which were NZ$114 million higher than forecast) due to the recent land zoning decisions that were announced subsequent to the forecast being finalised.
Treasury said that other core Crown revenue was slightly higher than forecast, with dividend revenue from SOEs NZ$248 million higher than forecast, primarily due to dividends received earlier than forecast. This revenue source is within the Crown so is not included in the total Crown OBEGAL result.
Offsetting the increased dividends, interest revenue was NZ$147 million lower than forecast primarily due to lower interest rates compared to those at the time of the forecast.
While the deficit for the three months was higher than forecast, the gains on New Zealand Superannuation Fund and ACC’s investment portfolios were greater than expected (NZ$1.1 billion and NZ$0.6 billion respectively), leading to an operating balance surplus of almost NZ$0.1 billion, NZ$1.2 billion higher than the forecast operating deficit.
Gross debt at NZ$79.3 billion, or 38.8% of GDP, was lower than forecast, reflecting government stock repurchased on the secondary market which reduced the amount held by parties outside the core Crown. Net debt was close to forecast at $54.9 billion, or 26.9%, of GDP.
English said that as the Government worked to reduce deficits and meet its target of returning to surplus by 2014/15 it would need to remain prudent with new spending and ensure existing spending delivered better public services and good value for taxpayers.
"That’s important in a world where economic and financial market conditions remain difficult and unpredictable," he said.
"We need to remain on top of the factors we can control, so we can minimise our debt and have a strong balance sheet.
"The Government is committed to getting back to surplus so we can start repaying debt, resume contributions to the New Zealand Superannuation Fund and target more investment at priority public services. We are making progress, but we will need to restrain our spending for some years to come, so we have those options when we return to surplus."