Govt's operating balance healthier than expected

Finance Minister Bill English will deliver the Government's Budget next month. Photo / Mark Mitchell

The Government's bank balance is better than forecast ahead of next month's Budget, but its income from tax has taken a hit.

The operating balance for the eight months to February 28 was a deficit of $1.6 billion, ahead of the $2.7 billion forecast, its latest financial statement reveals.

Core Crown tax revenue was $361 million lower than forecast.

This was because of lower than expected business profitability, which created a shortfall in provisional and terminal tax.

As a result, other individuals' tax and underlying corporate tax are both well behind forecast ($267 million and $228 million respectively).

The Government is due to release its Budget on May 20, when the Finance Minister is widely tipped to announce tax cuts of between two and five per cent across existing income thresholds.

It is also considering increasing GST to 15 per cent.

GST revenue ($389 million or 5.3 per cent above forecast) in the eight months to the end of February offset the shortfall in income taxes, with better than expected retail sales volumes from increased consumer confidence.

Treasury said it expects this trend to continue to the end of the fiscal year.

Meanwhile, gross debt is tracking slightly lower than forecast at $49 billion or 26.6 per cent of GDP.