Tax growth outstrips spending

Compared with forecasts in the pre-election economic and fiscal update, tax revenue was $400 million below forecast. Photo / Kenny Rodger

Halfway through its financial year the Government's budget deficit is $4.1 billion, $1.9 billion less than in the same period the year before.

But most of the difference is due to the impact of the Canterbury earthquakes on the Earthquake Commission. Tax revenue grew faster than government spending between the two periods.

In the six months to December 31, the tax take was $26.4 billion, 5.5 per cent higher than in the same period in 2010, while core Crown expenses rose 3.5 per cent to $34.1 billion.

Nearly half the tax increase was in corporate tax. Most of the rest was an increase in the GST tax following the higher rate which came into effect in October 2010.

Among the big-ticket items on the spending side, welfare (which includes NZ Superannuation) was 2.2 per cent higher at $11 billion, health spending 2.8 per cent higher at $7 billion and education 2.1 per cent higher at $5.8 billion. In addition, higher levels of debt saw the Government's interest bill rise $400 million or 28 per cent.

Compared with the forecasts in the pre-election economic and fiscal update, tax revenue was 1.5 per cent or $400 million below forecast.

The shortfall in PAYE reflected a breakdown in the normal seasonality, the Treasury said; it expects it to reverse, or at least narrow, over the second half of the year. The GST take was also below forecasts, reflecting higher-than-expected earthquake-related refunds to insurance companies.

Although the corporate tax take was in line with forecast, softness in the most recent assessments is expected to persist and result in a shortfall from the $8 billion forecast for the full year.

Finance Minister Bill English said the economic update in the Budget Policy Statement last week showed growth would be slightly lower in the near term because of a weaker global outlook.

But Greens co-leader Russel Norman said the Government's way of addressing self-inflicted falling tax revenues had been to increase government borrowing, cut core government services, and sell state assets.