English shrugs off doubts over surplus

Bill English. Photo / Hawke's Bay Today

Halfway through the Government's financial year its deficit at just under $1 billion was $381 million smaller than forecast last December.

That is two-thirds of the full-year deficit of $572 million the Treasury forecast in the half-year economic and fiscal update.

The positive surprise was on the revenue side, the tax take for the six months to December 31, 2014 running 1 per cent, or $323 million, ahead of forecast.

Finance Minister Bill English still professes confidence the surplus will eventuate this year.

But officials warn the largest part of the extra revenue - $132 million more GST than expected - may not hold up for the rest of the year.

"However the outlook for other tax types such as source deductions (PAYE) is more positive, signalling some upside risk going forward," the Treasury said.

Compared with the same period a year earlier the PAYE take was up 6.9 per cent at $12.5 billion, GST up 7.9 per cent at $13.8 billion and corporate tax up 9.2 per cent at $3.9 billion, while ACC levies were 10.7 per cent lower at $1.7 billion.

Infometrics economist Benjamin Patterson said GST revenue growth was likely to slow over the coming months as weaker oil prices and a lack of inflation in general dampened growth in the nominal value of spending in the economy.

"With lower earnings from the dairy sector and weaker inflation dampening taxable income, we expect tax revenues to grow at a more moderate rate over the remainder of the current fiscal year. Given this weaker track for income growth, the Government's goal of running an Obegal surplus in 2015 currently looks to be a stretch too far."

Core Crown spending was just $90 million or 0.3 per cent ahead of forecast. Compared with the same six months of 2013 spending was up $1 billion or 3.2 per cent. English said the latest figures underscored the difficulty in forecasting the difference between two big numbers - government revenue and expenditure.

Labour's finance spokesman Grant Robertson said through two election campaigns and numerous Budgets, Bill English and John Key had promised a Budget surplus in 2014/15 as a sign of their economic competence.

"They have set the test and they are on track to fail it," he said.