Deficit dents hopes of annual surplus

Bill English says the government continues to manage the books carefully. Photo / NZME.

Minister says lower inflation means it’s less likely final accounts will show surplus

The Government's books are back in their accustomed red, the Treasury yesterday reporting a deficit of $269 million two-thirds of the way through the fiscal year.

That is $343 million less than it estimated last December when it forecast a $572 million deficit for the year to June.

But Finance Minister Bill English's confidence that, his officials' forecasts notwithstanding, the Government would still manage a surplus this year appears to be wavering.

"We are continuing to manage the books carefully, but lower inflation, while good for consumers, is making it less likely that the final accounts in October will show a surplus for the whole year," he said.

A month ago, the Treasury reported a surplus of $77 million in the operating balance before gains and losses for the seven months to January, the first time since 2009 that the Government's books had shown a part-year surplus.

In the eight months to February, GST revenue at $11.1 billion was $261 million below forecast, and while $150 million of that shortfall was caused by to larger-than-expected earthquake-related refunds, the rest could largely be attributed to low inflation cutting consumer spending in nominal terms.

Offsetting that, PAYE, company tax, and customs and excise duties were all ahead of forecast for this stage of the tax year.

The overall tax take at $42.4 billion was 7.5 per cent higher than in the same period a year ago.

Core Crown expenditure, at $47.2 billion was up 3 per cent on a year ago, with social security and welfare (up 3.4 per cent), education (up 3.3 per cent) and health sending (up 1.7 per cent) accounting for most of the increase.

Core Crown spending for the eight months was $312 million lower than forecast, but some of that relates to the timing of Treaty settlements and would reverse out in time, English said.

The Government's interest bill was 7.9 per cent or $200 million higher than a year ago, reflecting a $4 billion increase in gross debt to $87.5 billion and a $3.5 billion increase to $63.5 billion in net debt which excludes the New Zealand Superannuation Fund, student loans and other advances.

At 26.7 per cent of gross domestic product, net debt is lower than forecast and closing in on its target of 26.5 per cent of GDP for the full year.