KEY POINTS:
Tax cuts remain on the Government's agenda, despite its accounts plunging into the red for the first time in 14 years, Finance Minister Michael Cullen says.
Figures for the seven months to the end of January show the operating balance has moved $394 million into deficit - $4.2 billion below Treasury's forecast.
The figure is largely due to a sharp dip in global financial markets, leading to a $2.5b hit on investments held by the Cullen Super Fund, ACC and the Earthquake Commission.
The Government has also taken a $1b paper loss from revalued ACC liabilities, largely due to a revised inflation forecast.
But Dr Cullen today said most of the losses were unrealised and tax cuts remained on the agenda for this year's budget.
However the crown finances were now entering a "period of quite considerable uncertainty", which might mean pushing out additional phases of a multi-year rolling tax cut programme.
Dr Cullen said movement on the first stage of tax cuts would most likely "not be terribly affected" by the current position of the crown accounts.
"I think it's more a question of how this might flow through the timing of a package," he said.
"We are working on a package that has a certain end point and the question is when that end point is reached," he said.
"There will still be a package within the budget and it will be a comprehensive package taking a medium to long-term view."
Dr Cullen said the operating balance excluding gains and losses (OBEGAL) - a more accurate representation of available money - was far closer to forecast.
It came in at $3.1b, $633m lower than forecast, with tax receipts coming in $200m lower.
But he said an "unanticipated drop in revenue during January" was cause for concern and officials would be monitoring next month's tax take very closely. That would be the last set of figures before the Government's budget spending programme was locked in.
Dr Cullen said the sharp deterioration in the accounts showed National's large-scale tax cut plans at the last election would have been unwise.
If National had won and gone ahead with its three-year $11.5b programme the crown accounts would be "heading deep into the poo by now", Dr Cullen said.
It also showed why the Government's conservative fiscal management in recent years was important.
Dr Cullen said the NZ Superannuation Fund's (Cullen Fund) $910.8m operating balance deficit for the period equated to a return of minus 6.18 per cent.
But since the fund began investing in late-2003, up until the end of January, the rate of return had been just over 11 per cent on an annualised basis - 4.4 per cent above the rate of return of investing in 90-day Treasury bills.
The deficit in the operating balance was the first since June 1993.
- NZPA
