Governments operating surplus tracking ahead of expectations

Finance Minister Grant Robertson. Photo / Mark Mitchell

The New Zealand government's operating surplus is still running ahead of expectations in the first eight months of the financial year as high employment rates bolster income and consumption taxes.

The operating balance before gains and losses (obegal) was a surplus of $2.85 billion in the eight months ended February 28, more than the $2.36b surplus predicted in December and twice the $1.41b surplus in the same period a year earlier.

Core Crown taxes rose 5.7 per cent to $50.86b, some $692 million more than anticipated with goods and services tax and source deduction beating expectations. Core expenses rose 3.9 per cent to $52.3b, largely in line with forecast.

"GST and source deductions were both above forecast by $0.3b and $0.2b, primarily as the levels of employment and residential investment being above forecast. Customs duties were also above forecast by $0.2b," chief government accountant Paul Helm said in a statement. "Much of this variance can be expected to remain until year-end."

Consumer confidence has remained upbeat since the Labour-led government took office late last year, offsetting a slump in business sentiment, while the robust labour market and expanding population has supported gains in PAYE and GST, catching up to bigger-than-expected corporate taxation on increased profits in the June 2017 year.

Finance Minister Grant Robertson will deliver his first budget on May 17 and while he had already signalled capital investment as a focus for future spending, the state of the nation's infrastructure has prompted the Council of Trade Unions to call for the government to ditch its Budget Responsibility Rules to reduce Crown debt to 20 per cent of gross domestic product.

The latest Crown accounts show net debt of $59.74b, or 21.1 per cent of GDP, tracking ahead of expectations as the tax take narrowed the cash deficit to just $174m. However, gross debt was ahead of forecast at $86.34b, or 30.5 per cent of GDP, due to unsettled trades at month-end that will reverse.

The Crown's capital commitments were $13.53b as at February 28, up from $11.63b a year earlier, of which $6.96b was for state highways, $3.07b earmarked for land and property, and $2.11b for other property, plant and equipment.

The government yesterday unveiled plans to place more emphasis on safety, local road maintenance and improvement and alternatives to cars as opposed to its predecessor's focus on roads of national significance.

The accounts show the Crown's operating balance, which includes unrealised movements in its investment portfolio, was a surplus of $6.17b, some $1.03b more than forecast, and turning around a deficit of $4.39b a year earlier, due to bigger than expected investment gains in the Ne Zealand Superannuation and Accident Compensation Corp funds.

The Crown's net worth rose 17 per cent to $116.73b, largely on increased property valuations, and was $984m more than forecast on the bigger operating surplus.