Budget deficit of NZ$4.3 bln in 7 months to end of January is NZ$473 mln worse than pre-election forecast; Tax revenues 3% below forecasts

The Treasury has released the Government's accounts for the 7 months to January 31 showing an operating balance before gains and losses (OBEGAL) of a deficit of NZ$4.3 billion, which was NZ$473 million worse than forecast in the Pre-Election Fiscal update (PREFU).

This was due to tax revenues, in particular income taxes, GST and corporate taxes, being NZ$31.36 billion or NZ$946 million less than forecast in the PREFU.

Spending was NZ$1.2 billion less than forecast at NZ$33.935 billion.

The operating balance, which includes gains and losses from investments, was a deficit of NZ$8.9 billion, which was NZ$2.5 billion worse than forecast.

Treasury said there was now a risk that revenues for the full year would be lower than the February 2012 Budget Policy forecast.

Here's Treasury's commentary on the figures:

In the seven month period, Core Crown tax revenue of $31.4 billion was 2.9% below the PREFU forecast.

The key drivers of this variance were: 

* Source deductions (income tax) were $383 million (3.0%) below PREFU forecast, reflecting weaker than forecast labour market conditions.

* GST revenue was $345 million (4.0%) below PREFU forecast with earthquake‐related GST refunds to insurance companies continuing to account for most of this variance.

* Corporate tax was $245 million (5.1%) below PREFU forecast. Corporate tax assessments in the month of January were below forecast which is a pattern that is now expected to persist to the end of the financial year.

In the 2012 Budget Policy Statement (BPS) published last month, the Treasury forecast the operating balance before gains and losses (OBEGAL) for the current year to be $1.3 billion lower than in PREFU, primarily reflecting a weakening in economic activity. January tax data was in line with the BPS assessment, although weaker labour market conditions now apparent suggest some downside risk to the full year source deductions forecast.

In the seven months to 31 January, Core Crown expenses of $39.4 billion were 3.1% lower than expected. Most of this variance was either offset by similar revenue impacts, or reflect timing of expenditure and is expected to reverse by the end of the financial year. The Treasury continues to expect that expenditure at year‐end will be similar to that forecast at PREFU.

The OBEGAL was in deficit by $4.3 billion, $473 million higher than forecast driven in part by EQC expenses related to the 23 December 2011 earthquake ($290 million). Including gains and losses, the operating balance deficit, at $8.9 billion, was $2.5 billion higher than forecast.

The main contributors continued to be higher‐than‐forecast actuarial losses on the Government Superannuation Fund liability ($1.0 billion) and ACC’s outstanding claims liability ($721 million), as well as higher‐than‐assumed losses on investment portfolios across the Crown ($205 million).

(Updated with more detail, video of Finance Minister English)

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Print baby Print.  Gotta pay those bills somehow.

That's why we don't have $100 coins skudiv....too much of a temptation for Kiwi DIY enthusiasts...

Damn, I was working on that $100 one, but now I have to add a zero.....

Don't worry we can make it up from the earnings from the sale of SOEs but next time when the absent returns from those SOEs don't show up then we will be printing...

How about post the sale of the SOE paper, the govt slaps a 99% tax on the SOE share div payments...!

This is called the Economics of Deflation.......as Goverment cuts spending (in a highly Goverment dependent economy), GDP contracts and Taxes collected follows accordingly.
This is the problem the Greeks faces...a quick spiral downwards....
(although in this case NZ Treasury helpfully overstate growth for the Key goverment but still cannot work magic wheneven reality strikes)
The best and quickest solution to this problem of course is to follow Mr Bernard Hickey advise that the RBNZ now buys NZ$473 million of Goverment bonds from the Treasury to help cover this shortfall....problem solved !!
Next quarter to cover another soon-to-come shortfall, the RBNZ should also buy up whatever shortfall the treasury has experience and we can then go our very merry way to happiness..... 

The inverse of that, would be the economics of inflation, which is more like what we have here.  Govt increases expenditure, while decreasing revenues.  No doubt this madness can't continue forever (sorry MMT) and we will eventually hit the Greek continium, we are not there yet.
Continuing down the self destructive pathway of creating ever more money from thin air, in order to increase the consumption of valuable and fast vanishing resources, is the baisic premise of mainstream economics.  This is symptomatic of sick and twisted minds, who have a short term view, and place no value on our grandchildren.
"In the future?  We will all be dead"   J.M. Keynes

The government has not borrowed a cent since the election and is cutting everywhere, = deflation.

What country are you talking about?

MMT doesn't argue that you can keep creating money in all situations. It says that you should act counter-cyclically to the non-government sector. Its just a straw man to claim it says something which it doesn't say at all.
I see you accept quoting Keynes in that situation is acceptable but in other contexts he is considered a raving loon? For example when he is advocating that the government should act counter-cyclically and spend during a deflation?
I don't think MMT can fix everything, because in practise its hard to balance non-government spending. In fact this may require correctly forecasting the future. Thats why I support the 100% reserve idea, which is able to be implemented and understood.

I think you need to address where there are spending cuts, certainly can't have it both ways, 
Here is one source of non-government spending cuts, people are generally paying off their debts, rather than spending,
And here is the government 'cutting' spending, (for some definitions of cutting)
(This can also be found from the RBNZ site as data files).
As is obvious the bulk of the spending cuts have been in the non-government sector, and the result is called debt-deflation. But it is highly likely that as long as the debt-deflation is happening, if the government doesn't increase its spending (by running a deficit) then tax revenue falls will continue, because both government and non-government spending will be falling.
Unfortunately some economists and many here don't believe a sharp fall in non-government borrowing could possibly influence the macro economy. I find it hard to understand why they dismiss the obvious fact that it can, does and is.

  "if the government doesn't increase its spending (by running a deficit) then tax revenue falls will continue, because both government and non-governmet spending will be falling."
I don't think many would disagree, the question is: what is the end game? We have had an economy stimulated by steeply increasing debt for forty years. Even after flogging off some of our finest assets we are still deeply in hock to international lenders. Our current account deficit requires that Government and/or the private sector must borrow to fund it - or sell more of our dwindling stock of assets - which all leads to bigger CA deficits down the track.
We really don't have a choice Nic and I believe Bill English is well aware of how close he is to the limits of "borrow and spend" 

Chuck in Kiwis (generally) not wanting to sell any assets, yet believing housing will continue to magically appreciate, it really becomes comical ...

A lot of people disagree, but maybe thats just my impression from the audience of this site. There are two decent alternatives I see though.
1) Finance the government deficit through the reserve bank, at least for a while. While doing this put the money into parts of the economy which are typically government domain, education, health care, infrastructure. Some non-traditional government domain could also be considered, but eventually the government might end up crowding out the private sector there so I would focus on traditional government spending areas first.
2) Implement 100% reserve banking, then using the new monetary policy framework follow step 1.
Both these alternatives should reduce the current account deficit because the new investment is coming from NZ. The choice NZ faces is where the economy should be financed, on shore or off shore. Asset sales are pretty clearly pushing the economy further towards off-shore funding.
2 is much better than 1 because the current financial system is the source of the financial instability.

If you look at the first graph it shows a debt/disposable income ratio which is falling slightly, nothing indicates nominal debt is falling, and given what we know of bank lending growth, nominal debt is growing.
Tax revenues have not fallen, they are below a fairy tale figure forcast by the PREFU, which was to optomistic by far.

This graph does highlight an underlying fall in nominal debt. I agree its not conclusive proof that overall non-government debt is falling because there are other debt categories. But the only alternative interpretation of that graph is that disposable incomes have risen drastically, and thats palpably not happening. The nominal debt in this sector is falling.
The government debt is rising, though this is not a rise in discretional spending. Its mostly automatic rise in spending due to extra load on support departments.
The other thing to realise is that even a plateu in the debt can drive a significant fall in spending, and in this case lead to a fall in housing turnover, as observed. This may eventually turn into a fall in house prices, which I expect will soon become obvious across the whole country.
I may try to extract the overall nominal non-government debt statistics from some RBNZ data, though I think this takes a little more effort. I do think this graph is indicative, though there may be some sectors which are taking on more debt. The other question to ask is if they are increasing their debt levels because the businesses are distressed or is the debt sustainable for a significant time into the future (e.g is the income really there to sustain the debt).

It is explained here
Personal income is growing, so is debt.  Gross national debt per capita is growing (including all forms of debt).  M3 is growing at over 6%, nothing is shrinking except a debt/income ratio for households, no doubt the tax cut/GST hike had an impact as well.
As to the sustainability of the debt, well by far the biggest borrower is govt, and I'm confident there is not enough income to sustain the debt.

Hi Nic, the RBNZ has the debt totals by broad category here:
Agriculture, business and consumer debt have all declined in nominal terms over the past three years. Housing debt has risen at 1.2% - well shy of the 17% annual increase recorded in the crazy days of '04.
Total agriculture, business and household debt is at $307 thousand million as of January '12, three years ago - Jan '09 the total stood at almost exactly $300,000,000,000.
The Government debt has grown to make up for the shortfall but this is a private sector de-leveraging, at least in constant real dollar terms.

Nice one. I suggest doing the following experiment for yourself as well,
Take these statistics. Add the Nominal GDP from the spreadsheet, 
(its quarterly)
and then calculate the debt/gdp ratio and graph that. Maybe you could call this some kind of debt burden ratio. What can then be observed (in real terms) is that the debt is effectively shrinking, even where its not in nominal terms. Soon, given the direction, I think its apparant that all the nominal debts will be shrinking as well.
Its also possible to do the same calculation for the total (non-sectorial) credit statistics. Showing that the total debt burden is shrinking.
Why would I want to calculate this or focus on it?
You could, I expect, get a nice smooth curve out of this by aggregating the GDP annually.
and while the government is the single biggest debtor, the government debt burden is obviously not the most significant.

This is called the Economics of Deflation.......as Goverment cuts spending (in a highly Goverment dependent economy), GDP contracts and Taxes collected follows accordingly.
Um, do you want to tell me where the government has cut its spending? Government total spending increased by (from memory) 12% last budget.
They're good at talking, National, but actions let them down. I mean look at what Collins is up to.

You miss the first that private investment / spending has gone bye bye first, so all thats left is govn spending.

Bill English vid in there now from in Parliament buildings this morning

Unfortunately there is no "economic recovery" occurring.
When this obvious fact is accepted by the powers that be and clearly explained to the NZ population, then some real progress might be possible to improve the situation.
But as long as the general population is lead to believe that there is currently an "economic recovery" underway and that we are going to be fine and have supluses in 2015/16 (yeah right!), then nothing significant will change and no significant (and likely painfull) changes will be accepted by the population.

Quite correct Optimist...govt skewered by it's own spin...My question related to the bloated state sector salaries...What % of govt expenditure is Salaries wages and contract payments?
How bad does it need to get before the members of the old boys club have their supply of taxpayer dosh trimmed.

Well put.

time for a new tax on super profits like Oz have done on Mining.  Id suggest the big 4 trading banks and Fonterra get slapped a special extra 10 % tax. Somethings gonna have to fill those holes...  Bill ?  hello, hello -  are you there

Are Fonterra really earning 'super' profits?
Who spends the extra money better?
a) government
b) the farmers who presumably have profits distributed to them for further investment or consumption.

Its the wrong investment that is the problem, loading up debt to dodge tax is a double whammy.

Working and living within our means - PM.
Stop - economic megalomania by the government, before we are forced and have to declare the nation's insolvency.
4 (four) million people !

We are all waiting eager to spot who it will be.....which of the state sector bosses, will voice their concern for the greater good of NZ....which one is going to declare a 10% cut in his or her renumeration!...don't hold your breath folks.

Clearly the govt dept that wastes the most on a regular basis and contributes next to nothing to the wealth of the country, will have to take a 50% cut in staffing and salaries....step forward Treasury...place the neck on that block of wood please.....WHOP...thud

Wolly, the bigger problem is not that Treasury wastes money and contributes next to nothing, but the damage they do, and their perception management does, to the economy.

Here is an extract on how it works from Charles Hugh Smith:
For four long years, the financial and political Status Quo has masked pervasive structural decay with artifice, pretense and lies. It's like we're living in a rotting mansion run by delusional megalomaniacs.
For four long years, the power-drunk Status Quo Elites have piled on pretense and illusion at the expense of truth. Welcome to the Crazy House. The entire rotten edifice of global financialization was visibly crumbling by early 2008, and yet here we are, four long years later, still under the jackboots of artifice and lies. Instead of the cruel illusions of TARP, now we have HAMP, LTRO, The Troika, and assorted other acronyms and inanities passing for policy.
Welcome to the Crazy House, a rotting McMansion ruled by power-drunk megalomaniacs suffering from delusions of invulnerability and god-like powers. Why are we here, you ask? Because the drunks who run the household make it so darned easy: just keep quiet, listen politely to their ravings, and you get subsidized meals, free rent, a houseful of techno-gadgetry and nonstop entertainment--and that's not even counting the amusement value of their delusional, sloppy-drunk ramblings out by the rust-stained pool.

All the more reason to bring down the axe. Chop Treasury in half. Fire half of them. Slash salaries on those left. Same with senior state sector salaries...The whole system is a stinking pig trough filled with our money, in which they wallow.

heres 2 ideas:
1) CGT
2) remove neg gearing tax credits
that should get rid of a lot of the shortfall (over a billion I believe) and encourage productive positive cashflow activity (eg earning a salary as opposed to sitting on your butt and waiting for gains).

CGT is an easy yes, the idea of tax credits is to give businesses start up help....which I think is not taht bad an idea....however its abused on property...and some ppl I work with get a salary and then pay 1/2 tax as they are "losing" money.

Muppets may be a bit complementary, they are more like wombles or teletubbies.

so we get to see if Von Mises was right.
Ludwig von Mises said, “There is no escape from a credit induced bubble,”

Ohhh – I’m just recognising some outbursts from other bloggers. Maybe Bernard/ Alex can ring the PM and tell –something it’s happening in New Zealand - on this blog at least – a miniscule eruption of a few members of the public – not happy with the government.  
…and we still have a NZproblem – NZmedia only concerned about Greece and fu&*en Ramsay and TVone about “Corostreet” and “Stack the rafters”

Walter I do know the Finance Minister keeps his eye on interest.co. Not too sure about the PM though. Will ask him :)

Where is our young(er) generation ?
Alex –  you “Young Guns” should become far more active. You are the future of New Zealand with visions and new ideas – coming from the private sector - not the “55+, BB - Old Fashion Cock- Fighting Bureaucrats” in parliament mismanaging our economy.
 an article - almost on the verge of stupidity.

Alex - what do you think of Murray McCully's $26,000 3-day trip to Myanmar?
Now in 2012 - under extreme NZ financial/ economic difficulties – simply - he should be sacked.

Stop megalomania by the government in this country
You young Kiwis will pay massive taxes for excessive expenses "created" by our ministers – mismanaging our economy.

two answers Kunst:
1. We cant get into position that the incumbent holds, ie no question I can run the company better than the 66 year old who struggles with a computer, gets paid three times what he should and gets a pension that I wont get.
2. We go to Australia. You have loads of people saying its not all as it seems, but honestly the majority of young New Zealanders have nothing to lose by checking it out. 52 000 last year. The entire population of Nelson heading to oz.

Absolutely – the result of a failed system.

The question really should ne asked how they got their projections so wrong.
I would have hought it was better to undersell the projections, than overstate what they could be. It seems that projection across the boardhave been well off recently. What have we got these experts for, if they have been so wrong.

I fear that it will take a crash for the necessary action to be prompted.
the 2007-2009 10 % correction wasn't enough

I can't remember when Treasury got a prediction right recently- can you Rob?  They are a waste of funding. 
Word around the traps is that Fonterra will be dropping payout next year by 50c/kg. Speaking to farming mates it seems that of the payout they are currently receiving $1.50/kgms is available for 'discretionary' spending.  If payout is cut 50c that one third cut from their 'discretionary' spending pool which will mean a tightening on retail spending etc.  This is what has a flow on effect in the community.
I heard that dairy herds were recently signed up at $2700/head.  Given the high cost of cows and the millions of dollars collectively being spent by farmers on environmental costs/upgrades over the next 1/2years, I wouldn't think there will be too much tax being taken by govt from the dairy sector 2013/14- not that Treasury will take that in to account. ;-)

I heard Olam Int. (former ministry of works) has put together some new effluent requirements, that will make 95% of dairy farmers non compliant.  They are putting these proposals to councils, in order to get a standardised national set of regulations.  Not to mention they will be "made" if these proposals are passed.  I hven't seen the doc, and can't track it down.
Cow prices up 40% in the last 12mths?  #winningthefuture

skudiv - I think you mean Opus Intl.  There is a new Farm Dairy Effluent Design Code of Practice that has been developed for DairyNZ (by a steering group and technical advisory group) that is currently voluntary but one which many farmers (including ourselves) are working with.  This is what is being promoted to Regional Councils as the 'gold standard'.  It recommends getting qualified engineers to design the ponds.  The cost to us for this will amount to around $8k.  Bigger farms will pay more. Some Councils, such as Southland have this now as a requirement.  Others, such as Waikato, don't (which is odd because they were part of the group involved in designing the Code).  I believe it is only a matter of time before you see Codes such as this become the policy of regional councils.  Especially if as talk around the traps goes, regional councils are in for a shakeup under this government later this year.
You are correct about some engineering businesses being 'made' by it.  It pays to shop around.  Our system will cost around 100k.  Another farmer with only a slightly larger farm was quoted $240k for his system.  The difference - many people doing lots of clipping the ticket along the way compared to us, combining with other farmers to create a 'buying group' and largely managing the project (outside of what the engineers are contracted to do) ourselves.

CO - that's (the upgrading)a step in the right direction. Letting things degrade, and passing on the cost to following generations, is theft. Sure, it makes you current books look good, but it's not maintainable long-term. You guys are leaving it pretty late to clean up, though, the Soil Conservation and River Control Act was signed off in 1941, according to my 1973 copy of McCaskill's 'Hold This Land". What he would have made of today's watercourse-pugging and effluent-saturation, I sometimes wonder.
Much of the 'wealth' we currently think we have, actually represents squandered Natural Capital, so obviously we can expect to be poorer real-time, if we start paying our real way. Treasury should employ some expertises other than 'economist' -
The funny thing to watch, will be the lemming-bubbles (Hugh is right about the housing bubble, but doesn't fit it into the bigger picture) as folk seek to 'preserve' their 'wealth'. They'll all knee-jerk out of the Dow any day soon - gold perhaps? Nobody has tried swedes - maybe you could be in on the ground floor of the next bubble? Catch-cry could be 'swede as'.
Be interesting to watch BigAg over the next 5 years or so, the corporate vs the local, monoculture vs biodiversity, patent vs heritage. In the face of fuel prices/availability, local/small/diverse will win. Maybe I should buy back the 25 acre spread at Waimatuku.....

pdk - I guess it is as the Regional Councils keep telling us - we have more science now so that's why we keep changing (in the case of ES it is the rules that change)  :-)
Technology has made big strides in the area of effluent application. Soil moisture probes that can be set to measure soil moisture anything from 1 hourly intervals to every 24hrs and then send a text to the farm manager with results are becoming common now.  This when used alongside low application irrigators results in much better outcomes for the environment and the farm.  There is also technology around shutting down effluent irrigators as soon as there is a problem e.g. pressure drops.  So no longer should you have effluent being sprayed in one place because the irrigator hose has come off, or the irrigator has stopped moving. And it can all be GPS tracked.  This wasn't available when we changed our system 10 years ago.  So it isn't all about the farmers being slow. ;-) The cost to us to set our system up isn't much shy of 15k.
Water course pugging was happening when I was growing up on a Waikato dairy farm in the 60's.  Also back then our cowshed effluent was sent straight in to the nearest drain. We were farming at 2.47 cows a hectare so I'm not convinced that the way we farmed back then was totally more environmentally friendly. ;-)
I think Southland probably already has the inside running of 'swede as'! :-)

It gives me no pleasure to see Mr English looking so unwell: That's the real story here.

Im the opposite, he took on the job applied his dogma which hasnt worked and now its biting him....

Hey that's NZ not Europe...oh...it's the whole world....!
"Europe’s economy contracted in the fourth quarter as investment declined by the most since 2009 and exports and consumer spending dropped. "

First order of priority..slash Treasury in half..save $500,000.000 a year....order two: slash all the senior state sector salaries by 10% this year and another 10% next year. Order three: slash all local govt salaries for senior bosses by 10%...Order 4: slash all MP salaries by 10% this year and another 10% next year.

I wonder how many Algerian relatives of the liar "husband", who clearly is out to fleece NZ taxpayers, how many will end up being granted the right to emigrate to NZ just because some idiot woman in Northland married the slob. Shearer should clear the muck from his brain when he starts blathering on about the govt cutting the foreign affairs splurge...he just might start to recognise how utterly stupid some Kiwi can be. This "family dispute" is set to cost taxpayers tens of thousands.
Then as the flood of 'slob's' relatives start to arrive we can look to be forking out hundreds of thousands in benefits....Shearer will love it....guaranteed Labour voters the lot of them.