Financial Statements of the Government of New Zealand for the Seven Months Ended 31 January 2012

The Financial Statements of the Government of New Zealand for the seven months ended 31 January 2012 were released by the Treasury today.

The monthly financial statements are compared against monthly forecast tracks based on the 2011 Pre-election Economic and Fiscal Update (PREFU) published on 25 October 2011.

In the seven month period, core Crown tax revenue of $31.4 billion was 2.9% below the PREFU forecast. The key drivers of this variance were:

• Source deductions were $383 million (3.0%) below PREFU forecast, reflecting weaker than forecast labour market conditions.

• GST revenue was $345 million (4.0%) below PREFU forecast with earthquake-related GST refunds to insurance companies continuing to account for most of this variance.

• Corporate tax was $245 million (5.1%) below PREFU forecast. Corporate tax assessments in the month of January were below forecast which is a pattern that is now expected to persist to the end of the financial year.

In the 2012 Budget Policy Statement (BPS) published last month, the Treasury forecast the operating balance before gains and losses (OBEGAL) for the current year to be $1.3 billion lower than in PREFU, primarily reflecting a weakening in economic activity.

January tax data was in line with the BPS assessment although weaker labour market conditions now apparent suggest some downside risk to the full year source deductions forecast. In the seven months to 31 January, core Crown expenses of $39.4 billion were 3.1% lower than expected. Most of this variance was either offset by similar revenue impacts, or reflect timing of expenditure and is expected to reverse by the end of the financial year. The Treasury continues to expect that expenditure at year-end will be similar to that forecast at PREFU.

The OBEGAL was in deficit by $4.3 billion, $473 million higher than forecast driven in part by EQC expenses related to the 23 December 2011 earthquake ($290 million).

Including gains and losses, the operating balance deficit, at $8.9 billion, was $2.5 billion higher than forecast. The main contributors continued to be higher-thanforecast actuarial losses on the Government Superannuation Fund liability ($1.0 billion) and ACC’s outstanding claims liability ($721 million), as well as higher-than-assumed losses on investment portfolios across the Crown ($205 million).

The residual cash deficit and net debt were largely in line with forecast, with net debt at $48.1 billion (23.7% of GDP).

Gross debt, at $74.2 billion (36.5% of GDP), was 1.1% lower than expected due to lower than forecast government stock issuances.

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