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The government’s accounts have turned sharply into the red, with an operating deficit of $757 million for the three months to the end of September, when a surplus of $943 million had been earlier forecast.
Of the reversal, $1.8 billion related to losses on the investment portfolios of Crown financial institutions.
This was mainly due to continuing turmoil in financial markets, and $400 million related to a loss arising from a drop in the discount rate used for valuing ACC’s outstanding claims liability.
Those losses were partly offset by tax revenue which was $500 million higher than forecast.
The tax take was $500 million or 3.9 per cent better than expected in the three months to the end of September.
Company tax and goods and services tax were up $200 million and $100 million respectively, but that mainly related to timing issues.
Treasury said the change was a result of the late reversal of accruals relating to an earlier period.
These accrual reversals did not affect cash receipts.
Putting aside the impact of these accrual reversals, GST revenue was close to forecast, but corporate tax revenue was $200 million lower than forecast.
Company income tax assessments were lower than expected in a period usually dominated by provisional tax payments from multi-national and finance sector companies.
These companies are likely to be amongst those most affected by the current international financial turmoil.
Finance Minister Michael Cullen moved to reassure the public following the release of the figures, saying the unrealised losses in entities like ACC and the New Zealand Super Fund did not affect the Government's cash position.
Dr Cullen said although gross debt was running $1b higher than forecast at $31.9b – 17.8 percent of GDP – net debt was $1.4b lower at $2.6b.
Once assets were taken into account the Crown's net financial position was positive, standing at about 5.7 percent of GDP.
"This strong balance sheet position vindicates the government's decision not to blow the surplus in good times.
"As a result New Zealand is today in a better position to weather the current global economic situation than the great majority of developed countries."
- with NZPA