The Government's books are looking like they will be in a better condition to the tune of almost NZ$1 billion at the end of the financial year next month than expected at the May Budget, Treasury said this morning.
In the government's financial statements for the 11 months to May 31, Treasury said core crown tax revenue was coming in higher than forecast, while core crown expenses were lower than forecast. The result meant the government's operating balance before gains and losses (OBEGAL) is expected to come in at a deficit of NZ$16 billion rather than the NZ$16.7 billion forecast in Budget 2011.
Finance Minister Bill English welcomed the news, saying the deficit would still be extremely large, with the government focussing on reaching a budget surplus in the 2014/15 financial year. His comments came after Prime Minister John Key said this morning that a best case scenario would see the government hitting a surplus in the 2013/14 year.
"Core Crown tax revenue in the eleven month period stood at NZ$47.4 billion (0.5% above forecast). GST was the largest contributor to the better than expected outcome at NZ$512 million or 4.2% above forecast," Treasury said in the financial statements.
Indications were that higher than forecast private consumption was a significant contributor to this variance, with March quarter retail sales rising more than Treasury expected. In addition, GST refunds came in lower than forecast. Corporate tax revenue was NZ$118 million (1.8%) below forecast.
"Core Crown expenses of NZ$62.1 billion were 1.2% or $770 million, below forecast with most departments continuing to report some under expenditure against their forecasts. Most of this under expenditure is expected to persist for the full year ended 30 June," Treasury said.
"The deficit in the operating balance before gains and losses, at NZ$10.8 billion, was 10.6% smaller than expected due to the higher than forecast tax revenue and lower than anticipated core Crown expenses. Looking towards the year-end, we expect tax revenue for the full year to be in line with (or even stronger than) forecast and expenses to continue to be below forecast for the full year," it said.
"Assuming the Government’s share of the Canterbury earthquake costs for the current fiscal year are close to forecast, the OBEGAL deficit of NZ$16.7 billion set out in the Budget is now expected to come closer to NZ$16 billion for the year to 30 June."
Gross government debt at 31 May was NZ$3.3 billion or 4.7% higher than forecast due to valuation movements as a result of higher than forecast exchange rates and issuance of Treasury bills remaining ahead of forecast. At NZ$73.2 billion or 37.6% of GDP, gross debt was NZ$20.5 billion higher than the same time last year.
"By in large, the movements in gross debt were net debt neutral meaning that at 31 May 2011 net debt was close to forecast at NZ$39.7 billion or 20.4% of GDP. However this was NZ$14.3 billion higher than at the same time last year, resulting in net finance costs NZ$516 million higher than in the same period last year," Treasury said.
(Updates with Finance Minister welcoming the news, link to PM Key's comments)