Treasury figures show budget deficit deepening as corporate, GST and income tax revenues are weaker than expected

Treasury figures for the government's accounts for the first seven months of the fiscal year show the budget deficit (operating balance before gains and losses) was NZ$6.207 billion, which was NZ$117 million or 1.9% worse than forecast in December at the government's half year economic and fiscal update (HYEFU).

Core crown tax revenues were NZ$233 million less than forecast in the seven months to January 21, while core crown revenues were NZ$659 million less than forecast. Core crown spending was, however, NZ$367 million better than forecast.

Treasury said GST receipts were NZ$285 million lower than expected, while corporate taxes were NZ$157 million below forecasts. Other individuals tax revenues were NZ$120 million below forecast, but, curiously, PAYE income tax was NZ$323 million higher than expected.

See our interactive chart below and here.

See the full report here.

Here is more detail below from Treasury:

Results for the seven months ended 31 January 2011:

For the seven months ended 31 January the majority of key indicators were tracking close to forecast. The only notable variances were for gross debt and the operating balance deficit. In line with recent months, the cause of these respective variances was largely due to two factors: debt issuance being ahead of schedule and investment
returns being higher than expected.

Core Crown tax revenue was slightly weaker than forecast (0.8% lower than expected at $29.9 billion) as underlying weakness in the economy resulted in shortfalls in GST ($285 million), corporate tax ($157 million) and other individuals’ tax ($120 million).

Partially offsetting the shortfall in tax revenue, source deductions (PAYE) were again 2.6% higher than forecast ($323 million). This was potentially due to wage and employment growth although volatility in recent data provides uncertainty over the cause.

Although core Crown revenue was weaker than expected, lower core Crown expenses (0.9% lower at $38.5 billion) and slightly higher profits from State Owned Enterprises and Crown Entities, saw the operating balance before gains and losses deficit remain largely in line with forecast at $6.2 billion.

Financial Statements of the Government of New Zealand – seven months ended 31 January 2011 3.

Both the residual cash deficit (at $10.1 billion) and net debt (at just under $37.0 billion or 19.4% of GDP) were also close to forecast, as the previous month’s residual cash variance reversed as expected.

Gross debt stood at $63.0 billion (33.1% of GDP), which was $14.3 billion higher than the same time last year. As a result of the higher debt position, finance costs for the seven months ended 31 January 2011 were $1.7 billion compared with $1.3 billion in the same period last year.

The January results reflect the Crown’s position up until 31 January 2011, prior to the devastating Canterbury  Earthquake of 22 February. Costs too the Crown associated with the tragic earthquake will be recorded in future accounts as costs are quantified.

Here is the reaction from Finance Minister Bill English:

Government financial statements for the seven months to January 31 are broadly in line with forecast, but this will change significantly in the coming months as the impact of the Christchurch earthquake becomes clear, Finance Minister Bill English says.

While the latest accounts show spending and revenue consistent with forecasts in the Half-Year Update in December, tax revenue was still about 4 per cent behind Budget 2010 forecasts.

“This result reflects the relatively flat economy in the latter part of 2010 and reinforces the need for sound fiscal management as we tackle the effects of the Christchurch earthquake in the coming months," Mr English says.

"As I've previously said, the earthquake will have a significant impact on the Government’s finances and the wider New Zealand economy for years to come.

"The Government will pay for the rebuilding of Christchurch by borrowing more in the short term, but also by prioritising spending on Canterbury over some other Government spending.

"It's important we stick to our broader economic programme to reduce New Zealand’s vulnerability to foreign lenders, get the Government’s finances in order and build faster growth based on higher national savings and exports.

"We need to ensure we have the resources to rebuild Christchurch and support its residents. The best way to pay for that is through sound management of our finances and building a faster growing economy," Mr English says.

Here is the reaction from Labour Finance spokesman David Cunliffe:

The Government’s accounts for the seven months ended 31 January provide another illustration of the folly of John Key and Bill English in suspending contributions to the Super Fund, says Labour’s Finance spokesperson David Cunliffe.

David Cunliffe said the operating balance was supported through higher than expected gains from the Super Fund, $1.8 billion above forecast, and by an actuarial gain from ACC $1.8 billion higher than a forecast actuarial loss of $889 million.

“Bill English and John Key remain adamant that the country can’t yet afford to resume contributions to the Super Fund, but month after month the Crown Accounts demonstrate how short-sighted they have been.”

David Cunliffe said the accounts showed that core crown tax revenue was weaker than forecast revenue because of a weak economy resulting in lower than forecast GST, corporate and individual tax.

“Overall the balance sheet has emerged roughly in line with forecast thanks partly to higher than forecast profits from SOEs and Crown Entities.

“The irony of that is quite obvious - if this Government wins a second term, it will begin selling off many of these assets that Kiwis now own,” David Cunliffe said.

David Cunliffe said the financial statements did not take into account the impact of the tragic Christchurch earthquake.

“But even before the earthquake it was quite apparent - from Treasury advice released at the weekend - that the economy was weaker in the second half of 2010 and early 2011 than Treasury had expected in last year’s Half Year Update.

"The failure of the Government’s so-called stimulus package - a half-baked cycleway and little more - is driving New Zealand back into recession, and has seen unemployment skyrocket from record lows under Labour to 6.8 percent under National - with 158,000 people now out of work. Another 700 a week are joining the dole queue.”

(Updates with Labour reaction, govt reaction)