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A rebound in consumer spending lost its momentum in the initial months of 2010 as the housing market slowed, Treasury reported in its monthly economic indicators series.

Treasury said the data released through February provided a mixed view of the economic recovery, with differences emerging between sectors in New Zealand.

Treasury said weak housing activity may be a result of uncertainty surrounding changes to property tax, but there may be a ‘technical’ rebound in February sales given the extent of the January fall.

The full release is attached below:

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The New Zealand government’s actual operating deficit before gains and losses in the five months to November was NZ$0.7 billion better than forecast in Treasury’s Half Year Economic and Fiscal Update released in December. Core crown tax revenue was NZ$0.3 billion higher than expected, while core crown expenses were NZ$0.3 billion lower than expected, Treasury said.

However, the better than expected deficit of NZ$3.7 billion (vs NZ$4.4 billion forecast) came as a result of higher than expected GST revenue due to an extra day available to attribute and process GST in November, Treasury said. The extra day was not included in the half year forecast and the variance is expected to largely reverse in coming months, Treasury said.

The accounts are reproduced below.

Corporate tax revenue was also NZ$0.1 billion (7%) higher than forecast mainly due to provisional tax assessments that were filed earlier than expected from taxpayers utilising tax pools, Treasury said.

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Treasury and the Ministry of Economic Development (MED) said they had asked outside companies to bid to run administrative services for the government, including information technology management, human resource management, procurement and executive corporate services.

If the bid process extends to full outsourcing, the move has the potential to transform the way Wellington’s bureaucracies are run and slash government spending on salaries and other services. Treasury and MED did not say how much money they wanted to save or how many workers may be involved, but government is currently forecasting spending of NZ$33.5 billion on ‘other operating expenses’ in the year to June 30, 2010.

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The number of families vulnerable to high debt has more than doubled over the past four years, a new study by The Treasury says, with one in five spending more than 30% of their gross income on debt repayments.

In recent years, the total debt of the household sector has risen appreciably.

This has led to concerns about “excessive” borrowing, and to the possibility that some households may have become unduly vulnerable in the event of unexpected shocks.

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The government has again increased its provision for defaults under the deposit guarantee scheme from NZ$863 million in September to NZ$899 million in October, its accounts released today by Treasury show. The forecast provision at the time of the 2009 Budget in May had been NZ$831 million.

The figure is for net provisions after expected recoveries. However, Treasury noted the uncertainty that surrounds the provision figure, given “a significant range of outcomes are possible under the scheme in terms of which entities may default and the eventual loss to the Crown following an event of default”.

At the end of October, there were 73 institutions covered by the scheme, with NZ$133.1 billion guaranteed. The provisions have been made for institutions with less than NZ$5 billion in deposits.

Here are Treasury’s comments on the provision:

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The government’s deficit before gains and losses on investments was NZ$1.22 billion or 59% worse than forecast in the first four months of the financial year, largely because taxes from company profits were almost 40% lower than forecast. (Update 1 includes Bill English statement.)

The operating deficit (which includes gains and losses on investments) at the end of October was slightly better than forecast in the 2009 Budget in May, accounts released by Treasury show.

Higher than expected investment returns from the NZ Super Fund and the ACC Fund over the first four months of the government’s financial year were almost fully offset by lower than expected tax revenue, investment losses by the Reserve Bank and an actuarial loss on the ACC claims liability, Treasury said.

The Crown operating deficit (which includes gains and losses on investments) was NZ$1.267 billion at the end of October, compared to a forecast deficit of NZ$1.316 billion. Tax revenue of NZ$15.4 billion over the four months was 9.4% lower than forecast, while cash receipts of NZ$15.9 billion were 1.5% below forecast.  A large proportion of the “variance” in revenue from forecasts was due to lower than expected business profitability for the 2009 tax year, Treasury said.

The operating deficit before gains and losses (OBEGAL) was NZ$3.27 billion, which works out at NZ$182 million a week. This was 59% worse than a forecast NZ$2.05 billion forecast in May.

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