Recession will be felt 'for some time' says English

Bill English

The latest Crown accounts show the impact of the recession will be felt for some time, Finance Minister Bill English says.

Released today, the accounts show the Government is continuing to pull in less tax than it forecast in this year's budget.

"It means there will be little or no new money for Government departments and ministries for the foreseeable future - and certainly not at the unsustainable rate of increase provided by the previous government," said English.

"It's clear that the impact of the recession will be felt by many businesses and, in turn, on the Government's books for some time. This will influence our decisions around both revenue and spending."

The accounts for the four months ending October recorded tax revenue as $15.4 billion which was $1.6 billion (9.4 per cent) lower than forecast.

Treasury said lower business profits were hitting the Government's books and this flowed through into a lower tax take in 2010.

"Recent 2008/2009 financial year results for public-listed companies indicate that weakness in corporate profitability has occurred across a broad range of sectors," Treasury said.

"This shortfall against the Budget Update in provisional tax is expected to carry through to year end, but is not expected to increase over this period."

The $1b (39.7 per cent) reduction in corporate tax take compared to forecasts was also matched by individuals' tax revenue being down $346 million.

Treasury said there had been greater than expected refunds due to repayment of overpaid provisional tax, more requests for refunds and increased donation and childcare credits.

These hits to revenue resulted in the operating balance before gains and losses rising to $3.27b, which was $1.2b worse than the forecast $2.04b or 59 per cent.

This was offset by higher than forecast investment returns from the New Zealand Superannuation Fund ($1.3b) and ACC ($0.6b).

These greater than expected returns meant the headline operating balance was only slightly worse than the forecast $1.3b.

The Government's cash deficit also improved from $4.1b to $3.9b due to some higher than forecast dividends from state owned enterprises and other cash receipts.

NZPA