Government operating deficit before gains and losses 18% better than forecast in May

Government operating deficit before gains and losses 18% better than forecast in May

The Government performed better in the year to June than it forecast in the May Budget, posting an operating deficit before gains and losses (OBEGAL) of NZ$6.3 billion, 18% better than the NZ$7.7 billion forecast.

The OBEGAL widened from a deficit of NZ$3.9 billion the previous year, and positive balance of NZ$5.6 billion in the year to June 2008.

See the government's accounts here.

Treasury said the widening deficit before gains and losses over the year came as core revenues fell and the government's core expense base remained unchanged.

Total Crown revenue fell NZ$4.8 billion to NZ$74.7 billion over the year, and was below the NZ$77.9 billion forecast in May.

"Although core Crown tax revenue was close to forecast at NZ$50.7 billion, it has decreased by NZ$3.9 billion (7.2%) on the previous year and NZ$6.0 billion since 2008," Treasury said.

  • Declining profits (both corporate and individual) and declining interest rates (reducing the withholding tax revenue) continued into the 2010 financial year reflecting the lagged effect of the recession.
  • While October 2008 and April 2009 personal income tax cuts occurred in the previous financial year, 2010 was the first full year at the lower tax rates.
  • Tax revenue in 2009 included $1.4 billion in relation to structured finance transactions which was “oneoff” type revenue.
  • Despite rising unemployment, growth in aggregate salaries and wages added to source deduction tax income, while growth in domestic consumption was reflected in an increase in GST revenue.

Total Crown expenses were down NZ$2.4 billion over the year to NZ$81 billion, and were below the NZ$85.7 billion forecast.

Core Crown expenses remained fairly flat compared to the previous year, up very slightly at NZ$64 billion, but below the NZ$65.2 billion forecast.

Increases in expenses from last year included:

  • Health and education expenses increased by $1.1 billion primarily as a result of new spending initiatives.
  • Benefit expenses increased by $1.5 billion across a number of benefit types. $1.2 billion of this increase was due to an increase in the number of recipients while indexation of benefits led to an increase of $0.5 billion. Policy changes and decreases in the average payment (before indexation) decreased expenses by $0.2 billion. The largest increases were to New Zealand Superannuation and unemployment benefits (which rose by $0.5 billion and $0.3 billion respectively).

Decreases in expenses from last year included:

  • Two items of extraordinary 2009 expenditure stemming from the introduction of the retail deposit guarantee scheme ($0.8 billion) and the write down of the investment in KiwiRail ($0.3 billion). Neither expense was repeated in the 2010 financial year.
  • Impairments on tax receivables and student loans were $1.5 billion lower in 2010 compared to 2009. The large asset impairments in 2009 were a reflection of the recessionary impacts on debt recovery.
  • The discontinuation of the KiwiSaver employer tax credit resulted in a $0.2 billion reduction to core Crown expenses.

Unrealised investment gains made by the New Zealand Superannuation Fund and ACC Fund meant the government recorded investment gains of NZ$1.8 billion in the year, although this was down from NZ$2 billion forecast in May.

Including gains and losses, the government had an operating deficit of NZ$4.5 billion, against NZ$5.7 billion deficit forecast.

This was better than the NZ$10.5 billion operating deficit in the year to June 2009, but below the NZ$2.4 billion surplus in 2008.

(Updated with more on revenue, expenses.)

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3 Comments

And this is giving the NZD support ?

Nothing quite like throwing so much at the fan that the peasants lose sight of the walls is there!

Key point....govt revenue dropping....forget the add on stats ...the fluff and stuff....it all comes down to an economy that is behaving like a stuffed Swiss watch...sloooower and sloooooower.

 

Good one Dipton Man but meanwhile overeas,he markets are also starting to get that warm fuzzy feeling normally associated with another round of morphine-strength quantitative easing from the Fed.

Further injections of money into the system, however, appear futile, given the results of the last $1 trillion splurge. And the glaring example of how a similar zero interest rate policy (ZIRP) failed to lift Japan out of the doldrums for almost two decades. Talk of QE may be largely posturing by the Fed ahead of the November G-20 summit on exchange rates.

The importance of this next summit should not be under-estimated. Convincing China and other major exporters to accept a substantial upward revaluation of their currencies will not be easy. And the tools necessary to force such an adjustment are largely un-tested. But failure would inevitably result in a trade war, with tit-for-tat imposition of punitive import tariffs, or a currency war, with competing devaluations. Either would generate massive global instability. The stakes are high. And this is one outcome the G-20 cannot afford to get wrong.

O.K Gummy..your move!