Government Finances End The Year In Better Shape

Gyles
Beckford Economics correspondent

• Government
  annual deficit shrinks on better income, lower
  spending.
• Deficit for financial year ended June $3b
  less than forecast.
• Higher inflation boosts GST
  receipts, company tax payments up.
• Govt spending
  about $1b less than budget.
• Net debt levels less
  than forecast.
• Final accounts confirm PREFU
  numbers.

The Treasury has confirmed that the
government posted a significantly smaller budget deficit on
the back of higher tax revenue and lower
spending.

Treasury figures, excluding ACC finances
(OBEGALx), showed a deficit of $8.7 billion for the
financial year ended June, about $3.2b less than forecast in
the budget. Including the ACC finances, the deficit was
$10.8b, $4.3b less than expected.

The numbers were
similar to the pre-election opening of the books (PREFU) two
weeks ago, which had not been given final approval by
the Auditor-General.

Treasury said the financial year
had started with growth improving amid recovery, which had
been upset by the higher fuel prices which had driven
inflation and interest rates.

“The improvement in
OBEGALx was largely owing to economic factors driving higher
tax revenue, timing related delays in spending resulting in
lower core Crown expenditure and stronger than expected
results of SOEs and Crown entities.”

Fiscal drag and
inflation

The core tax take was about $1.1b above
forecast at nearly $125.8b on the back of higher income,
company, GST, and provisional tax payments.

Treasury
noted that employee tax payments were driven by wage and
salary earners being dragged into higher tax brackets, while
the impact of inflation on the price of goods and services
added another $1b to GST returns.

Earnings from state
owned enterprises, such as the three major power companies
that the Crown has a majority stake in, were about $1.6b
below forecast, as a sharp drop in wholesale electricity
prices cut revenue.

Core crown expenses were about
$900m less than forecast, but about $4.6b higher than a year
ago.

“Existing policy settings around benefit
entitlements … and increases in costs of providing public
services … have impacted growth in expenses in 2025/26,
with other large offsetting factors across the remaining
sectors.”

Big spenders

Major spending rises
included $1.5b for superannuation, $1.4b on higher payments
to more people on jobseekers benefits; $2.6b on
health.

These were offset by money set aside, but not
spent on the 2023 bad weather events, money gained by the
IRD crackdown on tax arrears, and a lower spend on settling
an historic Māori land claim.

Net debt was also
marginally lower than expected at $186.8b or 40.9 percent of
the value of the economy.

Accounts for the first three
months of the new financial year will be published in early
November.

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