Government deficit on track with Treasury forecasts at NZ$5.8 billion after first five months of financial year

Treasury says the Government's operating balance before gains and losses (OBEGAL) for the five months to November last year came in largely in line with forecasts, being a deficit of NZ$5.8 billion.

In the Financial Statements of the Government for the five months to November 30 out today, Treasury also said when gains and losses are included, the Crown's operating balance was a deficit of NZ$2.5 billion, which is NZ$2.3 billion, or 47.9%, less than forecast.

"This variance is due to gains recorded by the New Zealand Superannuation Fund and Accident Compensation Corporation. The NZS Fund recorded gains in its investment portfolio that were NZ$1 billion higher than forecast, while ACC recorded an actuarial gain on their outstanding claims liability of NZ$0.5 billion, NZ$1.3 billion above their forecast actuarial loss," Treasury said.

The Crown's monthly financial statements are compared against monthly forecast tracks based on the Government's 2010 Half Year Economic and Fiscal Update which was released last month.

In the first five months of the financial year overall core Crown tax revenue was close to forecast at NZ$20.5 billion, NZ$27 million, or 0.1%, above forecast, Treasury said. Within this, PAYE revenue was NZ$185 million, or 2.1%, higher than forecast, and corporate tax revenue was NZ$179 million, or 7.2%, below forecast.

"While the Treasury’s judgment is that the corporate tax variance is likely to be timing in nature, it is too early to predict whether the PAYE variance will persist. Core Crown expenses were NZ$272 million lower than forecast due to individually small variances across a number of departments," Treasury added.

Meanwhile, as of November 30, the Crown's gross debt was NZ$60.8 billion - equivalent to 31.9% of Gross Domestic Product) - and NZ$1.5 billion higher than forecast. This didn't, however, translate into a corresponding increase in net debt (NZ$35.9 billion or 18.8% of GDP) because there were similar increases in financial assets during the period, Treasury said.

Prime Minister John Key yesterday said the theme of May's election year Budget would be savings and investment as the Government looks to increase savings and reduce public sector debt. Key said he had asked Treasury for advice on the viability of partial sharemarket floats of Mighty River Power, Meridian Energy, Genesis Energy and Solid Energy. It would also look at further selling down the Government's 76.5% stake in Air New Zealand.

Key's comments come after international credit rating agency Standard & Poor's put New Zealand's AA+ sovereign credit rating on negative outlook last November after a deterioration in the Government's budget outlook.

(Update adds chart, background on Key's state of the nation speech and S&P's announcement.)