Billion-dollar improvement in Government books – but billions left to go

Finance Minister Nicola Willis at Treasury last year. Photo / Mark Mitchell

The Government’s books are slightly better off than expected this month, with monthly accounts showing the deficit is about $1.2 billion smaller than forecast in December, using the old Operating Balance Before Gains and Losses metric or Obegal.

Core Crown tax revenue for the seven months of the fiscal year to the end of January was $70.2b, $600 million higher than forecast, with higher than expected GST contributing half of that increase. Overall revenue was also up.

Expenses were $80.1b, $600m lower than expected.

The Obegal deficit was $5b, $1.2b lower than expected — an improvement of 20% on the last forecasts.

Debt levels are only slightly improved with net core Crown debt at $180.6b, $66m better than forecast.

The slightly higher surplus was driven by higher-than-expected tax revenue, possibly owing to a recovering economy and lower-than-expected expenses, which were due to the timing of spending — meaning those expenses are likely to catch up with the Government eventually, reversing out some of the gains.

That represents the smallest of fiscal victories. Since 2022 and 2023, every set of Treasury forecasts has been worse in some way than the forecasts that preceded them and Treasury’s monthly accounts have tended to underperform those forecasts.

That means that the economy story the Government’s books have told has been rewritten roughly every six months to be more pessimistic than before— and then each monthly account publication, which is checked against those forecasts, has proved to even worse.

That changed last month, with the publication of accounts for the year to December, which were more positive than expected – a change that has persisted this month.

While the Government will be pleased that things are looking up slightly, any optimism will be contained by the fact that the accounts are only an improvement on the December Half-Year Economic and Fiscal Update forecasts, which were about as pessimistic as could be.

The Government has a long way to go to close the deficit, which is only expected to return to surplus in the 2030s.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.