KEY POINTS:
The Government's accounts are in better shape than previously thought after tax officials today admitted making a $600 million blunder.
The Government took a massive hit to its books in January, with figures for the first seven months of the financial year showing its operating balance had moved
$394 million into deficit - $4.2 billion below Treasury's forecast.
It was the first time in almost 15 years the Government's books had plunged into the red.
But Inland Revenue officials today revealed they had failed to take into account $600 million in provisional tax.
The revised accounts put the Government's operating balance back in black to the tune of $200 million.
Finance Minister Michael Cullen today said the commissioner of Inland Revenue and the head of Treasury had apologised to him over what was a "simple mistake".
"They used an incorrect forecasting figure and that flowed through. It's the classic case of where you get one thing wrong right at the start, you simply repeat that all the way through and it flows through into the final outcome," he told reporters.
Dr Cullen acknowledged he had been concerned over what had initially appeared to be a $700 million drop in forecast revenue - suggesting the economy was slowing faster than anyone had expected.
"Obviously if tax revenue was falling away quickly then that did have an impact around what was sustainable over the medium term."
The revised accounts gave him slightly more headroom for his May budget.
"What it does mean is we're not seeing tax revenue falling away at the rate it was and you will recollect there were not very good explanations for it at the time," he told reporters.
Dr Cullen later said in a statement the error was "serious" and "unacceptable".
"The news of a tax shortfall in January was a surprise to the Government, but also caused unnecessary confusion in the business community."
He said Treasury and IRD officials were investigating the cause of the mistake and would report back to him and Revenue Minister Peter Dunne.
The upward swing in the Government's books would not alter the Government's commitment to responsible fiscal management.
Mr Dunne said despite the error he was still happy with the overall performance of his department.
"I am confident the commissioner Bob Russell will be doing everything possible to ensure it does not happen again."
The overall slump in the January accounts was largely due to a sharp dip in global financial markets, which had led to a $2.5b hit on investments held by the Cullen Super Fund, ACC and the Earthquake Commission.
The Government also took a $1b paper loss from revalued ACC liabilities, largely due to a revised inflation forecast.
Dr Cullen said last month the crown finances were entering a "period of quite considerable uncertainty", which might mean pushing out additional phases of a multi-year rolling tax cut programme.
The first stage of tax cuts would be unlikely to be affected, he said.
- NZPA