Treasury reports budget deficit was NZ$884 mln worse than expected in 8 mths to Feb; GST, corporate and PAYE receipts below forecasts

By Bernard Hickey

The Government's budget deficit is running about NZ$550 million worse than expected because of weaker than forecast GST, PAYE and corporate receipts, but Treasury remains confident of a budget surplus in 2014/15.

Finance Minister Bill English reiterated the tightness of the budget outlook meant there was no room for a pre-election 'spend-up' and he later ruled out tax cuts in the May 15 budget.

Treasury reported a budget deficit before gains and losses of NZ$1.393 billion for the eight months to February, which was NZ$884 million below the Treasury's forecasts in the half year economic and fiscal update in December.

Core tax revenues were NZ$1.1 billion below forecasts. Treasury said about half of that would persist through to the end of the year with the rest was accounted for by timing differences.

"At this stage, it is anticipated that a stronger outlook for the economy will further boost tax revenues from their current position, largely offsetting the current weakness in revenue outturns, resulting in an outlook for tax revenue for 2014/15 that is broadly similar to that presented in the HYEFU," Treasury said.

"As a result tax revenue developments are not likely to impact on the forecast surplus for 2014/15," it said.

Core Crown tax revenues rose NZ$1.9 billion or 5% from a year ago, but this was NZ$1.1 billion less than forecast.

"Overall, it is expected that slightly over half of the $1.1 billion weaker year to date outturn will remain at year end once the elements that appear timing-related reverse," Treasury said.

"There are risks associated with this view and, owing to the timing of tax assessments, much of the expected narrowing may not be apparent until June data is received. Updated tax revenue forecasts will be released as part of the Budget Economic and Fiscal Update in May," it said.

Political reaction

Finance Minister Bill English said the figures reinforced the need for restraint in government spending.

 "We remain committed to reaching surplus next year and Budget forecasts next month will confirm we are on track," he says.

"But today's figures confirm what we have said repeatedly: It is a challenging task that will be achieved only if we remain disciplined."

"While some of the variance is due to timing issues and is therefore likely to dissipate over coming months, corporate tax, GST, other individuals' tax, source deductions and customs and excise duties were all below forecast," English said.

"These figures will be factored into next month's Budget and reinforce the need for restraint in government spending. They also confirm that there will be no capacity for reckless spending promises ahead of the election later this year."

Opposition says Government 'bad with money'

Green Co-Leader Russel Norman said the Government had failed to manage its books in a prudent way, building up NZ$60 billion of debt and never running a budget surplus.

“Announcing tax cuts for the top ten percent of income earners has been responsible for NZ$5 billion of accumulated debt alone. National is not delivering on its promise to run surpluses and reduce debt," he said.

"National has ignored the big structural problems with our economy – our high levels of private debt, our high current account deficit, and our on-going reliance on one or two industries to earn all our export income."

“The truth is that the Nats are just bad with money.”

Labour Finance Spokesman David Parker said English needed to explain why the Government was not receiving the forecast receipts from a growing economy.

“When the economy grows tax revenue should increase. Bill English should have a chat to Michael Cullen on how to run a budget – he ran nine surpluses in a row in the last Labour Government," Parker said.

“National’s excuses are wearing thin. If wages were rising, the tax take would be increasing."

(Updated with English's comments from news release and standup, Greens' reaction)