Accounts show challenge of reducing deficit

Bill English and Prime Minister John Key. Photo / Herald on Sunday

Crown accounts released yesterday highlight the challenge the Government faces in reining in its deficit.

Prime Minister John Key announced on Wednesday that the allowance for new spending in this year's Budget will be $800 million to $900 million, rather than the $1.1 billion set in the last two Budgets.

But it is an elasticised belt that he is taking in a notch.

Five months into the current fiscal year, even with the $1.1 billion cap in place, core Crown expenses were up $1.5 billion, or 5.8 per cent, on the same period in the previous year.

That reflects the fact that the cap relates to discretionary spending and much of the increase in Government spending is automatic, like the indexation of New Zealand Superannuation to the average wage, or driven by demand or uptake, like subsidies for KiwiSaver contributions.

In the five months to November 30 social security and welfare spending was up $300 million on the same period a year earlier, driven, the Treasury said, by indexation of welfare benefits and higher beneficiary numbers.

A $300 million increase in health spending reflected Budget decisions but much of the $200 million increase in education costs reflected demand-driven expenses from roll growth.

The Government's interest bill also rose $300 million, to $1.2 billion, because of higher debt levels.

While operating spending was $1.5 billion higher than in the same five months of the previous year, the tax take was $1 billion or 5.2 per cent higher.

PAYE was unchanged at just under $9 billion, indicating that the October 1 income tax cuts were matched by an increase in aggregate wages and salaries.

The corporate tax take was up $270 million or 15 per cent on the same period a year earlier, but the Treasury had expected a bigger recovery.

"This is primarily the result of provisional tax assessments being lower than expected and is likely to be timing in nature," it said.

The GST take increased by $780 million or 16.5 per cent, about twice as much as could be explained by the increase in the GST rate.