Treasury reports NZ$398 mln surplus in eight months to Feb; NZ$730 mln better than expected and NZ$667 mln better than last year; GST, corporate tax and PAYE higher than forecast; spending in line with forecasts

By Bernard Hickey

Treasury has reported the Government recorded a Budget surplus of NZ$398 million excluding gains and losses (OBEGAL) in the eight months to February 29, which was NZ$730 million better than the Treasury forecast in early December and NZ$667 million better than for the same period a year ago.

It reported that tax receipts from GST, corporate tax and PAYE were NZ$828 million better than expected at NZ$44.678 billion, which was only partly offset by lower than forecast interest revenues.

Treasury forecast a full year OBEGAL deficit of NZ$401 million in December, but better than expected results in recent months have increased the chances of a return to surplus for the full year. Treasury has also indicated in recent weeks that it is upgrading its economic growth forecasts for the 2016 Budget due on May 16.

Government spending of NZ$48.433 billion was NZ$113 million below forecasts, largely due to timing differences with delays in Treaty settlements and construction projects.

This all translated into the Government's residual cash position, which is often the determinant of the Government's borrowing programme, being a deficit of NZ$1.5 billion, which was NZ$1.6 billion better than forecast "primarily reflecting higher than expected tax receipts."

GST was NZ$306 million or 2.6% higher than forecast with GDP data for the December quarter showing stronger than forecast nominal domestic consumption.

Company tax was NZ$244 million or 4.3% above forecasts, although Treasury said part of the variance was expected to reverse out in March. Source deductions including PAYE were NZ$184 million better than forecast because of stronger labour income growth.

'One month's figures, but pleasing'

Finance Minister Bill English said monthly results could fluctuate significantly and he didn't take too much notice of one month's figures.

"The monthly results can fluctuate significantly - the February OBEGAL surplus was $500 million less than in January - so we don't put too much stock into any particular month's results," he said.

"What is more pleasing is the overall trend in the Government's books. We've moved from an NZ$18.4 billion deficit to around balance, and as long as we remain fiscally prudent we are on track to reduce net debt to around 20 per cent of GDP in 2020," English said.

He noted the operating balance - which includes gains and losses - was NZ$4.6 billion worse than expected.

"This was driven by the Super Fund recording a NZ$1.8 billion loss due to unfavourable market conditions, and falling interest rates and an increase in claim volumes have contributed to a NZ$3.1 billion increase in ACC's outstanding claims liability," he said.