Growing surplus opens way for tax cuts, says National

Seven months into the fiscal year the Government's operating surplus is $5.5 billion - $2.3 billion ahead of forecast.

The operating balance has been boosted by one-offs including a $600 million gain on the sale of Meridian Energy's Australian offshoot, Southern Hydro.

The bottom line is also swollen to the tune of $1.3 billion by higher-than-expected investment returns, especially by the New Zealand Superannuation Fund ($700 million ), but also by the Accident Compensation Corporation, the Earthquake Commission and the Government Superannuation Fund at around $200 million apiece.

"The surplus confirms that business tax cuts are affordable and so are personal tax cuts," said National's finance spokesman John Key.

The operating balance excluding revaluations and accounting changes (oberac), which removes investment gains, is a more modest $3.7 billion surplus.

Treasury said that was still $400 million ahead of forecast, largely due to delays in departmental spending, mainly in education and health.

It has forecast an oberac surplus of $5.9 billion for the full year, down from $8.8 billion last year.

The tax take so far this year at $28.2 billion is 6.6 per cent up on the same period last year.

That is $100 million or 0.4 per cent lower than forecast, as weaker-than-expected corporate tax and GST revenues have been only partially been offset by more tax from individuals.

The Government's expenses are 14.8 per cent, or $3.8 billion, higher than for the same period last year.

But that includes the $1.6 billion cost of writing down the value of the student loan book to reflect the net interest forgiveness policy and another $300 million to take account of the impact on the Kyoto liability of scrapping the carbon tax and changes to deforestation projections.

Excluding those two non-cash items, the increase in Government expenses compared with the same period last year is 7.5 per cent.

The main factors were the $600 million cost of inflation-indexing welfare payments, which was offset by lower unemployment benefits as the unemployment rate has fallen.