But Wage Subsidy and Resurgence Support Payments have lifted the deficit
Venkat Raman
Auckland, October 29, 2021
The New Zealand economy is performing better and its financial position remains strong with higher revenues at top New Zealand Treasury official has said.
Releasing the Interim Financial Statement of the Government for the quarter ended September 30, 2021, Chief Government Accountant Paul Helm said that the economy continued to perform better than expected for the first quarter of the 2021-2022 financial year, resulting in tax revenue being higher than forecast.
Fiscal support measures offset
However, the increase in Covid-19 Alert Levels triggered a number of government fiscal support measures which meant expenses were higher than forecast and more than offset the increased tax revenue. As a result, both the operating balance before gains and losses (OBEGAL) deficit and residual cash deficit were higher than forecast in the 2021 Budget Economic and Fiscal Update (BEFU 2021), he said.
According to the Treasury books, Core Crown tax revenue for the three months to September 2021 was $2.3 billion (10.5%) above the BEFU 2021 forecast, with positive variances across most tax types, specifically, corporate tax ($1.0 billion), other individuals’ tax ($0.6 billion), source deductions revenue ($0.5 billion) and GST revenue ($0.2 billion). These positive variances reflect economic conditions being better than forecast.
Higher operating deficits
Core Crown expenses were $31.0 billion, $3.2 billion above forecast, mainly owing to the resurgence of Covid-19 on August 17, 2021 which triggered a number of fiscal support measures. As a result, wage subsidies and Covid-19 Resurgence Support Payments were $2.6 billion and $0.9 billion respectively higher than forecast.
According to Mr Helm, the operating balance before gains and losses (OBEGAL) was a $5.4 billion deficit, $0.8 billion higher than forecast, mainly reflecting the core Crown results.
He said that when total gains and losses are added to the OBEGAL result, the operating balance was a $11.6 billion deficit, and $7.5 billion higher than the deficit forecast.
Reasons for the variance
The variance in gains and losses is largely related to (1) ACC’s outstanding claims liability increased resulting in valuation losses being $3.0 billion higher than forecast. This variance was mostly a result of changes to the discount rates and inflation assumptions used to revalue this liability (2) An increase in carbon prices has resulted in a loss from the Emissions Trading Scheme of $3.0 billion above forecast (3) Net losses on financial instruments were $0.4 billion, $1.2 billion below forecast, largely due to changes in market prices
“The core Crown residual cash deficit of $9.9 billion was $1.4 billion more than the deficit forecast. This was largely owing to increased payments as a result of the shift in Alert Levels causing transfer payments and subsidies payments to be $3.4 billion higher than forecast, partly offset by tax receipts being $1.6 billion higher than expected,” Mr Helm said.
Net core Crown debt was $112.2 billion (33.0% of GDP) on September 30, 2021, $10.6 billion lower than forecast. This was largely owing to the favourable variance from the 30 June 2021 results of $11.6 billion, which was partly reduced by the core Crown residual cash variance of $1.4 billion.
Net worth attributable to the Crown at $139.3 billion was $31.2 billion higher than forecast. Most of this variance relates to the 31 June 2021 results variance of $39.9 billion partly offset by the operating balance variance discussed above.
