More tax, flat spending good news for debt level

Fewer people are working but the tax take is 6.3 per cent higher than at this time last year. Photo / Greg Bowker

After two-thirds of financial year the deficit sits at $3b instead of a forecast $3.6b

Two-thirds of the way through the Government's financial year tax revenue is running 6.3 per cent above the same period last year, while spending is flat.

Three-quarters of the increased tax take is income tax from individuals.

The Government's financial statements for the eight months ended February show source deductions (PAYE) at $14.8 billion were just under $1 billion, or 6.9 per cent, higher than at the same stage of the previous year and $264 million, or 1.8 per cent, higher than forecast in December.

That is despite the fact that 15,000 fewer people were employed in the second half of 2012 than in the second half of 2011.

The fall in employment has been concentrated at the lower end of the income scale where average tax rates are lower, the Treasury explained.

When investment income and the self-employed are included, income tax from individuals was higher by $1.6 billion or 10 per cent than in the previous comparable period.

GST revenue was also up, by $488 million or 5 per cent, on the same period a year earlier but other indirect taxation and company tax were little changed.

On the spending side, social security (which includes superannuation) and health were both up by just over $200 million, but the third big-ticket item, education, was flat. It is running below budget partly because of issues to do with the introduction of the new payroll system, the Treasury said.

Spending on environmental protection is down just over $200 million on a year ago, reflecting fewer carbon credits issued under the emissions trading scheme and a drop in carbon prices.

The net effect is that the operating balance before valuation gains and losses (Obegal) for the eight months is a deficit of $3 billion rather than the $3.6 billion forecast in December's half-year update.

Finance Minister Bill English said keeping government spending under control was important if the target of a return to surplus in the 2014/15 year was to be met.

"It will remain important beyond then, because we will need to build up sufficient surpluses to provide choices around repaying debt and investing more in priority public services."

Bank of New Zealand head of research Stephen Toplis said the Government's activity - or lack of it - would be a significantly contractionary influence on the economy.

"Some, including the Reserve Bank, have suggested that so contractionary is government policy that it might fully offset the initial stimulus provide by the Canterbury rebuild," he said.