Treasury warns of deficit blowout

Photo / Mark Mitchell

Treasury says the government's corporate tax take may miss forecasts for the rest of the financial year, leaving the Crown vulnerable to a bigger-than-expected annual deficit.

The government's tax revenue was 2.9 percent short of forecast at $31.36 billion in the seven months ended Jan. 31.

The Treasury said tepid wage growth and employment sapped source deductions, while insurance companies sought GST refunds, and companies paid less tax than forecast.

The operating balance before gains and losses (OBEGAL) was a deficit of $4.31 billion in the period, wider than the shortfall of $3.84 billion flagged in the pre-election economic and fiscal update (PREFU).

"Corporate tax assessments in the month of January were below forecast which is a pattern that is now expected to persist to the end of the financial year," chief financial officer Fergus Welsh said in a statement.

"January tax data was in line with the BPS (budget policy statement) assessment, although weaker labour market conditions now apparent suggest some downside risk to the full year source deductions forecast."

Company tax revenue was tracking ahead of forecasts in the first half of the government's 2012 financial year, though it fell back in line with targets in the six months ended Dec. 31.

Last month the Treasury downgraded the forecast tax take to $28.7 billion for the 2012 financial in the budget policy statement, and flagged an OBEGAL deficit of $12.08 billion, wider than the $10.81 billion shortfall projected in the PREFU.

The government accrued $12.34 billion in source deductions for personal tax in the period, $383 million short of forecast, while gross company tax was $292 million below expectations at $4.04 billion. The take from Goods and Services Tax was $240 million below forecast at $14.63 billion, while GST refunds were ahead of expectations at $6.31 billion.

Government expenditure was 3.1 percent lower than expected at $39.42 billion in the seven month period, though the Treasury kept its PREFU expectation of an annual $74.46 billion figure.

The Crown's operating deficit was $8.93 billion in the seven month period, wider than the $6.46 billion forecast, with bigger than expected actuarial losses on the Government Superannuation Fund liability and bigger losses on its investment portfolios.

The government will be able to book a $380 million gain on the sale of AMI Insurance's good businesses to Insurance Australia Group, though it faces a $2.06 billion liability on the failed insurer, as well as an $8.81 billion Earthquake Commission property damage liability.

Net debt was $239 million below expectations at $48.15 billion, or 23.7 percent of gross domestic product, as at Jan. 31, and the Debt Management Office has slipped behind the run-rate needed to meet this year's bond programme to raise $13.5 billion.