New Zealand's Tax Receipts Plunge

by Mary Swire, Tax-News.com, Hong Kong

07 April 2009

New Zealand's tax revenue and receipts were approximately NZD1.8bn (USD1bn) lower than forecast in the Pre-Election Update.

According to the Deputy Secretary to the Treasury, Peter Bushnall, this variance has increased since last month, mainly due to a temporary timing difference that is expected to reverse next month.

Mr Bushnall explained:

"Once this timing difference reverses, we expect tax revenue and receipts to continue tracking more in line with the forecast in the December Update, as the continued deterioration in the world economic situation flows through to the New Zealand economy."

Bushnall went on to add that the operating balance before gains and losses (OBEGAL) was NZD1bn (USD583m). This was NZD1.8bn (USD1bn) lower than forecast in the Pre-Election Update and NZD1.2bn (USD700m) lower than forecast in the December Update mainly due to the lower-than-expected tax revenue result.

Including gains and losses, the operating deficit of NZD8.4bn (USD4.8bn) was NZD11.6bn (USD6.7bn) lower than forecast in the Pre-Election Update and approximately NZD5.2bn (USD3bn) lower than forecast in the December Update. The main contributors to this result were lower than forecast tax revenue, higher than forecast investment losses, and actuarial losses on both the ACC insurance liability and the GSF net pension liability.

Further to this, Bushnall points out that gross debt (Gross Sovereign-Issued Debt less settlement cash) continues to be significantly higher than forecast at NZD45.4bn (USD26.4bn) (25.3% of GDP) with higher than forecast issues of Reserve Bank bills, Treasury Bills and derivative liabilities.

However, this gross debt figure includes a component of Reserve Bank bills that (like settlement cash) have corresponding and offsetting assets and that were issued for liquidity management purposes, rather than reflecting the government’s underlying borrowing needs. Excluding these bills, gross debt would have been NZD40.7bn (USD23.7bn) (22.6% of GDP).

Although gross debt has increased, financial assets have also increased as a result, minimizing the impact on net debt.

New Zealand's net debt is lower than forecast at NZD3.3bn (USD1.9bn) (1.8% of GDP). Net debt has been reduced by positive valuation movements in financial assets and financial liabilities held by the New Zealand Debt Management Office and the Reserve Bank (driven by movements in exchange rates and interest rates).

According to Mr Bushnall, this has been partially offset by a higher than forecast residual cash deficit.

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