NZ jobs, wage strength offset tax impact of consumer caution

Photo / Mark Mitchell

Tax receipts from wage and salary earners are consistently higher than the Treasury expected after last October's tax cuts, with a relatively resilient labour market apparently offsetting cautious consumer spending which has lowered the GST take.

Treasury figures for the seven months to January 31 show that tax deductions at source from wages and salaries were 2.6 per cent higher than forecast for the second month in a row, suggesting that "the income tax cuts in October may have less impact on source deductions than expected," the commentary accompanying the figures says.

"This was potentially due to wage and employment growth, although volatility in recent data provides uncertainty over the cause."

Statistics showing hours worked and wage growth in the early part of this year, before the February 22 Christchurch earthquake, had been showing some growth in full-time employment at the expense of part-time jobs.

However, total tax revenue for the seven months was 0.8 per cent lower than forecast at $29.9 billion, reflecting a $285 million GST shortfall, corporate tax $157 million lower than forecast, and other individuals' tax down by $120 million on forecast.

That was partially offset by the higher PAYE tax take, total government spending 0.9 per cent lower than forecast at $38.5 billion, and slightly higher dividends from state-owned enterprises.

The net result gave an operating deficit "large in line" with forecasts at $6.2 billion, a residual cash deficit of $10.1 billion and net government debt of just under $37 billion equating ton 19.4 per cent of gross domestic product.

The figures are consistent with a pre-earthquake picture of slowly improving economic conditions, although the Treasury notes that costs associated with the earthquake have yet to show in the Crown accounts and will start to do so from February's accounts onwards.