Super Fund and ACC to the rescue

Investment returns have made up for dire $900m miscalculations in tax forecasts. Photo / Kenny Rodger

Investment returns from the Cullen Fund and ACC have rescued the Crown's bottom line in the first three months of the fiscal year.

The Government's accounts for the three months to September 30 record a deeper-than-forecast slump in tax revenues, which were $1.1 billion or 10 per cent lower than expected in the May Budget. The main reason was that corporate tax was $900 million or 41 per cent lower than forecast.

Half of that, the Treasury said, was due to its miscalculating the effect of changes to provisional tax dates and should correct when the October numbers are reported.

But the other half reflects weaker-than-expected business profitability.

PAYE and tax from the self-employed were also below forecast but that was largely offset by positive surprises in the GST take (a sign of a quicker pick-up in consumer spending) and oil royalties.

However, the big positive surprise was the contribution of the New Zealand Superannuation Fund, whose operating balance was $1 billion or 400 per cent better than forecast at Budget time.

The rapid recovery of financial markets boosted investment returns by $1.4 billion.

The fund's return for the quarter if annualised was 12 per cent, lifting its returns since inception six years ago to 5.66 per cent per annum, though the accounts note that that is still below the risk-free rate (yield on Treasury bills) of 6.45 per cent.

The financial markets' rebound also boosted, by $650 million, returns on ACC's $10 billion investment portfolio.

But ACC had an actuarial loss of $200 million over the three months, mainly due to using a lower discount rate to calculate the net present value of its liabilities, Treasury said.

When interest rates normalise the seesaw effect of a higher discount rate should lower the NPV of ACC's liabilities, all else being equal.

Compared with the same period last year, tax revenue was $2.4 billion or 17 per cent lower, while expenses were $400 million or 2 per cent lower.

Finance Minister Bill English pointed to the hit to revenue as evidence that the road to recovery would be bumpy.

Labour's finance spokesman, David Cunliffe, said the figures showed the Government had been short-sighted in deferring contributions to the Cullen Fund for a decade and casting doubt on the future viability of ACC.