By Bernard Hickey
The Government's books have surprisingly returned to surplus in the seven months to January, which is the first time Treasury has recorded a surplus since 2009.
Finance Minister Bill English said it was too early to declare victory in the National's Government's four-year long quest for surplus in the full 2014/15 year, but it showed the underlying improvements in the Government's finances.
Treasury reported the Government recorded an operating balance before gains and losses (OBEGAL) of a surplus of NZ$77 million in the seven months to the end of January, which was NZ$712 million better than forecast by the Treasury in December.
Core crown tax revenues were NZ$456 million better than forecast, due mainly to higher than expected corporate tax and PAYE receipts, while GST was NZ$95 million lower than expected because of larger refunds to insurers than expected. Spending was NZ$249 million lower than forecast.
The result will please the Government, which has pledged since 2011 to return the budget to surplus in the current 2014/15 year. Treasury forecast in December the budget would still be in deficit by NZ$572 million, but Finance Minister Bill English has expressed confidence that a surplus would be recorded by the time the accounts are finalised in October.
As recently as yesterday, English was saying it would be difficult to achieve a surplus given inflation was low and headed towards zero, which reduced the growth in the tax base.
Treasury reported corporate taxes were NZ$158 million greater than expected in the first six months, while other individuals' tax (provisional tax) was also NZ$158 million above forecasts, and other source deductions (PAYE) were NZ$146 million above forecasts. Treasury said it was unclear if the provisional tax receipts would continue to be strong for the rest of the year, while the strength in corporate taxes was expected to continue. The higher PAYE receipts were consistent with the strength in the labour market, Treasury reported.
Treasury said the largest reductions in Government spending were due to lower than expected applications for grants and subsidies and delays in finalising treaty settlements.
'Difference between two large numbers'
"This is the first time the Government's books have shown a part-year surplus since 2009," English said.
"Although it is too early to say whether we will have a surplus for the full 2014/15 year, this result demonstrates the strides we have made in improving the Government's finances," he said.
"Although corporate tax and source deductions were both ahead of forecast for the seven months to January, these latest figures underscore the difficulty in forecasting the difference between two large numbers. We won't know until the final accounts are published in October whether we will achieve a surplus for the whole year. The variance of both tax and expenditure from forecasts reinforces that message."
Later, English told Parliament and reporters that a surplus for the current year was now more likely than when the Treasury updated its forecasts in December, but that it was likely to dip back into deficit in the coming months.
"The officials' advice is that that will drop off afterwards, but it's a nice little milestone along the way to actually record a surplus," English said.
"The question now is whether it stays in surplus. Usually it tails off a bit from January through to June," he said.
(Updated with more details, English comments, chart)
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