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NZ government deficit smaller than expected in first half

By Paul McBeth

Feb. 20 (BusinessDesk) - The New Zealand government's operating deficit was smaller than expected in the first six months of the financial year, as the consumption and corporate tax take rose ahead of forecast in December, having lagged estimates in previous months.

The operating balance before gains and losses (Obegal) was a deficit of $990 million in the six months ended Dec. 31, smaller than the $1.37 billion shortfall forecast in the December half-year economic and fiscal update, and down from a deficit of $1.79 billion a year earlier, the Treasury said in a statement.

The books were helped by goods and services tax and the corporate tax coming in ahead of estimates, with core tax revenue at $31.44 billion, $323 million more than forecast, and up from $29.18 billion a year earlier. Expenses were close to forecast at $35.79 billion, up from $34.69 billion a year earlier.

"Although GST was $132 million higher than forecast, indicators for domestic consumption through the December quarter look to be weaker than forecast suggesting this positive variance may not persist," said chief government accountant Paul Helm. "However, the outlook for other tax types such as source deductions is more positive, signalling some upside risk going forward."

In December, the Treasury pushed out the government's forecast return to operating surplus until 2016, as persistently low interest rates erode revenue from withholding taxes, household spending lagging estimates saps GST, and soft inflation keeps a lid on wages, crimping income taxes. The Treasury forecast an Obegal deficit of $572 million in the year ending June 30, 2015, turning to a surplus of $565 million the following year.

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The Crown's operating balance, which includes fair value adjustments in its investment portfolio and actuarial movements, was close to forecast at a deficit of $316 million, compared to a surplus of $3.16 billion when it was swelled by gains in the government's investment portfolios with the Accident Compensation Corp and New Zealand Superannuation Fund.

The deficit has been running wider than expected in prior months due to widening actuarial losses due to the prospect of low interest rates running longer than anticipated, and narrowed in December due to the $330 million insurance settlement by the University of Canterbury.

ACC's insurance liability was $31.28 billion as at Dec. 31, $751 million more than forecast, while the Earthquake Commission's liability was $361 million more than expected at $3.73 billion and Southern Response liability was $105 million ahead of forecast at $1.29 billion.

The government's net debt was $66.46 billion, or 28.1 percent of gross domestic product, as at Dec. 31, 1 percent higher than the HYEFU forecast and up 6.7 percent from a year earlier. Gross debt was $1.5 billion ahead of forecast at $85,51 billion, or 36.1 percent of GDP, some 3 percent up on the year.

The Crown's residual cash deficit was $859 million wider than forecast at $7.63 billion, due largely to an early payment to the district health boards because of the holiday period. The deficit was 4.9 percent higher than a year earlier.

(BusinessDesk)

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