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16 Mar 2015

First Surplus in Six Years

The New Zealand government has reported a surprise operating surplus for the seven month period ending January.  With a surplus in the operating balance before gains and losses (OBEGAL) of $77 million, this is the first time the Treasury has recorded a surplus since 2009.  However, some commentators doubt the authenticity of this small surplus, with final year results not available until October.

Financial statements from the Treasury showed an operating surplus of $77 million, a massive $712 million above the figure forecast in December last year.  Coming on the back of a rise in tax revenue and a drop in government spending, this small surplus took almost everyone by surprise.  Core crown tax revenues were $456 million better than expected with government spending $249 million lower than forecast.

Corporate tax and PAYE receipts were responsible for a large proportion of new revenue with GST $95 million lower than expected due to large insurance refunds.  Corporate taxes were $158 million better than expected with provisional tax for individuals also $158 million above forecast and PAYE deductions $146 million above forecast.  In percentage terms, individual taxes were 6.1 percent ahead of forecast with company taxes 3.2 percent above expectations and total tax revenue 1.2 percent better than forecast.

"This is the first time the Government's books have shown a part-year surplus since 2009," said Finance Minister Bill English, adding "Although it is too early to say whether we will have a surplus for the full 2014/15 year, this result demonstrates the strides we have made in improving the Government's finances...  The question now is whether it stays in surplus. Usually it tails off a bit from January through to June."

"Although corporate tax and source deductions were both ahead of forecast for the seven months to January, these latest figures underscore the difficulty in forecasting the difference between two large numbers. We won't know until the final accounts are published in October whether we will achieve a surplus for the whole year. The variance of both tax and expenditure from forecasts reinforces that message." said English.

Not everyone is impressed, however, with Green Party co-leader Russel Norman saying "We're now seeing evidence that the government is massaging the books in an attempt to return to surplus."  According to Norman, the government was keeping state-run accident insurance levies artificially high, while also delaying settlements and artificially slowing spending in order to show an early surplus.

The Crown's operating balance is now $2.28 billion in deficit, smaller than the $3 billion forecast late last year.  The government has been running a larger deficit than expected in recent months due to widening actuarial losses due to the prospect of a sustained low interest rate environment.  However, increased tax revenue meant the Crown's residual cash deficit was $763 million less than expected at $2.4 billion, a figure almost half the $4.11 billion recorded in the same period a year earlier.