6 Mar 2012

Government books in worse shape than expected

6:04 pm on 6 March 2012

The Government faces a higher-than-forecast budget deficit this year as its tax take continues to fall below expectations.

That means it will have to borrow more money to meet the shortfall between what it spends and earns.

In the latest financial statements for the seven months to the end of January, the Treasury says income tax, goods and services tax (GST) and corporate tax are all below the level it forecast just before the election in November last year.

The operating deficit, once investment gains and losses are removed, was $4.3 billion.

This was $473 million (12%) higher than forecast, partly due to EQC expenses relating to an earthquake in Canterbury on 23 December.

Crown expenses were 3% lower than forecast at $39.4 billion. The net debt balance was broadly in line with forecasts at 23.7% of gross domestic product (GDP).

Tax revenue came in 3% below forecast at $31.4 billion because of lower sales and income tax and also lower corporate tax revenue.

However, Finance Minister Bill English says he is not alarmed.

"Forecasting is a pretty tricky business and in this case, as there's been a bit of a slowdown in the tax receipts, we think that that will probably flow through to the end of the year.

"That means as we look into next year's budget, the tax take could be slightly lower than we might have expected."

"We're not going to over-react to what's a relatively small change in the tax take. By the end of the year it could be $1 billion ahead - who knows?

"We're going to stick to the expenditure track, if that's possible, because that looks like it is possible at this early stage of the budget."

Mr English rejects suggestions the tax switch package - during which GST went up to 15% and income and company tax rates were cut - might be responsible for the lower tax take.

But Labour's finance spokesperson David Parker says it has clearly played a part.

"These figures suggest that the Government still hasn't recovered from that because they're not balancing their books."

Mr Parker says the Government appears to be softening people up for more bad economic news.

"PAYE is down 3% below where it was forecast just before the election, GST's down 4% and corporate tax is down 5%.

"The Government's overseeing a decline in the New Zealand economy compared with the expectations that they took to New Zealanders at the election."

The Government says it still expects to return to the books to the black in 2014-2015.