By Alex Tarrant
Most major forms of government revenue in the first four months of the financial year have been lower than expected due to subdued private consumption and weak wage growth affecting the tax take, and lower-than-expected interest rates affecting other revenue, the government's latest financial statements show.
Lower-than-expected government expenditure partly offset the revenue shortfall, but that didn't stop the government's underlying deficit being 6.3% worse than expected in the May Budget.
The statements for the four months to October 31 come ahead of the Treasury's Half Year Fiscal Update, to be released on December 18. All eyes will be on the 2014/15 projections, the year in which the government is attempting to post a fiscal surplus.
May Budget numbers showed a projected wafer-thin surplus of NZ$197 million in 2014/15, which has effectively been almost wiped out over the past few months, if the government's financial track does not change.
Prime Minister John Key and Finance Minister Bill English both said this week the government was on track to hit the surplus target. Key said he was "not uncomfortable" with recent projections he had seen from Treasury on the surplus track, while English said hitting the target would be "a bit of a challenge."
Core Crown tax revenue of NZ$17.9 billion in the four months to October 31 was NZ$292 million, or 1.6%, lower than Treasury had expected.
The GST take was NZ$253 million, or 5.0%, lower than forecast, driven by private consumption levels that were lower than expected, Treasury said. Source deductions were NZ$191 million, or 2.6%, below forecast, due to weaker wage growth than anticipated.
"This trend is also expected to persist to the end of the year," Treasury said about the source deductions revenue.
A brighter note was other individuals’ tax revenue, which was NZ$351 million, or 46.6%, higher than expected, reflecting an increase in the effective tax rate paid by non-incorporated businesses.
"Tighter collection and enforcement policies by IRD are considered to be a factor, resulting in a higher effective tax rate being paid by non‐incorporated business. The variance is expected to continue widening during the year, albeit at a slower pace," Treasury said.
Finance Minister Bill English said it was good to see Inland Revenue's tighter collection and enrforcement policies were reulting in higher effective tax rates for non-incorporated businesses.
That left overall revenue projections NZ$536 million, or 2.6%, below forecast.
Lower expenses too
Core Crown expenditure of NZ$22.9 billion was NZ$343 million, or 1.5%, lower than forecast, the financial statements showed.
Most areas recorded under-spends, with delays in some health spending (NZ$117 million), and lower than expected welfare costs (NZ$108 million) reflecting lower beneficiary numbers than anticipated. Education expenses and finance costs were also below forecast, NZ$72 million and NZ$69 million respectively, Treasury said.
Largely offsetting these under-spends were earthquake expenses, which were NZ$114 million higher than forecast due to land zoning decisions that were announced after the BEFU forecast was finalised, it said.
The Crown's operating balance excluding investment gains and losses (that is, not including changes in the Superannuation and ACC funds) was a deficit of NZ$2.865 billion in the four months to October, NZ$169 million, or 6.3% worse than expected.
While the OBEGAL deficit was higher than forecast, year-to-date gains made on the New Zealand Superannuation Fund and ACC’s investment portfolios were around NZ$1.4 billion greater than expected, and an unforecast actuarial gain of NZ$228 million was also recorded on ACC’s claims liability, Treasury said.
These gains held the operating balance deficit to NZ$34 million, which was NZ$1.9 billion less than expected.
Gross debt and Net debt were close to forecast at NZ$81.5 billion (39.8% of GDP) and NZ$55.5 billion (27.1% of GDP) respectively, Treasury said.
Finance Minister English said the latest figures confirmed the government was continuing to control its new spending and was getting better results from existing programmes, as it moved towards its 2014/15 surplus target.
"With the world economic position remaining uncertain, it is important that the Government remains focussed on responsible and prudent fiscal policy well beyond its 2014/15 surplus target," English said.