Govt deficit better than expected, says English

Photo / Mark Mitchell.

Getting the Government books into shape in the long-term remains a tough challenge despite improvements in the Crown accounts out today, Finance Minister Bill English says.

Treasury said for the six months to December 31 tax revenue was better than expected and the deficit smaller than forecast.

English said he was focused on long-term improvements.

"As I've been saying for more than a year now, the combination of responsible fiscal and economic management over the next few years is the only way we can get on top of this challenge," said English.

"We've made it clear that the budget on May 20 will provide most government agencies with no new money, because we're already borrowing $240 million a week and we simply don't have it available.

"At the same time, we need to increase our economic growth, so families can get ahead. It's simply unacceptable that the economy grew by a meagre 0.9 per cent a year in the three years to 2008, when the rest of the world was virtually booming."

The operating balance excluding gains and loses (obegal), which strips out unrealised investment gains or losses, for the six month period was a deficit of $3.67 billion, or 18.6 per cent better than the forecast made in December's fiscal update for a deficit of $4.51b.

Treasury said the smaller deficit was largely because of higher corporate and goods and sales tax revenue, and reduced government expenses.

The tax take was up $300 million than forecast because of payments made by large trading banks after they lost court cases over a tax dispute.

The net operating balance was a deficit of $1b, $1.45b smaller than forecast, on higher investment returns. Net government debt stood at $26.1b, which was about $1b less than forecast, equating to 14 per cent of gross domestic product.

The Government's net cash position, the difference between all income and spending - operational and capital - was a deficit of $8.85b compared with a forecast deficit of $7.92b, which was put down to timing differences in cash flows and was expected to be reversed in January.

Treasury forecast in its December fiscal update an obegal deficit of $7.5b for the fiscal year to June 30, 2010, an overall operating deficit of $4.8b, and net cash shortfall of $10.1b.

The Government is expected to post large budget deficits and need hefty borrowing at least until 2016, according to updated forecasts in the December update.

New Zealand returned to growth in the second quarter of last year after a recession of 15 months, the longest in more than 30 years.

NZPA