Below forecast revenue highlights challenge

  • Bill English

Government revenue continues to grow more slowly than forecast in the Budget, again highlighting the challenge of returning to surplus this year, Finance Minister Bill English says.

For the four months ended October 31, the operating balance before gains and losses (OBEGAL) deficit was $1 billion - $260 million larger than forecast in the Budget Economic and Fiscal Update in May.

Even though Core Crown tax revenue was $1.5 billion (or 7.9 per cent) higher than at the same time last year, it was $97 million lower than forecast in the Budget.

“This emphasises the unusual conditions the New Zealand economy is experiencing,” Mr English says. “We have stable growth, growing employment, and low interest rates, which are helping New Zealanders to get ahead. But at the same time, falling dairy prices and low inflation are impacting on the nominal economy and government revenue.

“This is making it more challenging for the Government to achieve its fiscal targets as quickly as it would like.”

The Government accounts for the four months to October show GST revenue was $200 million (3.5 per cent) below the Budget forecast and source deductions were $75 million (0.9 per cent) below forecast. These shortfalls were partially off-set by corporate tax revenue being $129 million (4.6 per cent) above forecast and other individuals tax being $70 million (5.3 per cent) higher than forecast.

“Treasury advises that these tax trends have been taken in to account in the Half-Year Economic and Fiscal Update forecasts that will be released next week.”

Core Crown expenses for the first four months of this financial year were $118 million higher than forecast – due largely to the one-off indemnity cost associated with Solid Energy. Excluding that cost, core Crown expenses of $24 billion were just $15 million over Budget.

“This shows the Government is generally doing a good job of controlling its own spending. The challenge is coming from revenue, which the Government has much less control over.”

Although core Crown tax revenue was weaker than forecast in the Budget, it was higher than anticipated by the more limited set of forecasts available in Pre-Election Fiscal Update in August.

However, Treasury says that due to sharply lower dairy prices and ongoing low inflation, the current rate of revenue growth is unlikely to continue over the rest of this financial year.

“The HYEFU next week will provide a fresh set of forecasts on the fiscal situation, on New Zealand’s economic growth and job growth, as well as wages and unemployment.”