Government likely to claim finance tide turning

The Government appears likely to go into the November 26 election claiming it has made a start in turning around the country's financial position.

Finance Minister Bill English has continually painted a black picture about the state of the country's finances, warning in May the country faced its largest ever deficit.

It is not unknown for politicians to complain gloomily about the economy until a few months before an election, when the tide turns just in time for voting day.

Treasury figures released yesterday for the 11 months ended May showed the Crown's operating balance before gains and losses of $10.7 billion was 10.6%, or $1.3 billion, lower than forecast.

Core tax revenue in the 11-month period was $47.4 billion, or 0.5% above forecast.

GST was the largest contributor to the better-than-expected result at $512 million, or 4.2% above forecast, Treasury deputy secretary Struan Little said.

"Indications are that higher-than-forecast private consumption was a significant contributor to this variance, with March quarter retail sales rising more than we expected."

Treasury now expected tax revenue for the full year to be in line with, or even stronger than, forecast and expenses to continue to be less than forecast for the full year, Mr Little said.

In addition, GST refunds were lower than forecast. Corporate tax revenue was $118 million, or 1.8%, below forecast.

The GST figures augur well for next week's gross domestic product figures, to be released by Statistics New Zealand.

Most economists are expecting the economy to have grown 0.4% to 0.5% in the three months ended March. Although the data is historical, it still provides an indication of general economic activity. GDP figures were due to be released today, but Statistics NZ said more time was needed to analyse the data.

Business confidence rose strongly in the New Zealand Institute of Economic Research's latest quarterly survey, suggesting momentum in the economy is picking up.

A seasonally adjusted net 31% of firms were optimistic about the general business situation in the June quarter, compared with a net 11% of pessimists in the March survey. Unadjusted, a net 27% were optimistic.

Mr English said the Government's financial statements showed some early signs of progress in getting the deficit under control.

Assuming the Government's share of the Canterbury earthquake costs for the current year were close to forecast, the operating deficit, set out in the Budget at $16.7 billion, was expected to be closer to $16 billion for the year to June 30.

"This is still extremely large and needs to be reduced. That's why the Government has set out a credible and faster path back to budget surplus by 2014-15, when we will start repaying debt.

"If possible, we would like to do even better than that by continuing to manage our costs and building a faster-growing economy."

Mr English acknowledged the rise in retail sales and said more recent retail data suggested the momentum would continue. The lower GST refunds appeared to be a timing issue that would reverse in coming months.

On the other side of the ledger, core expenses were $770 million, or 1.2%, below forecasts.

Gross debt at March 31 was $3.3 billion, or 4.7% higher, than forecast because of valuation movements resulting from higher-than-forecast exchange rates and Treasury bills being issued. At $73.2 billion, or 37.6% of GDP, gross debt was $20.5 billion higher than last year.

Labour finance spokesman David Cunliffe said the accounts showed debt growing at an alarming rate and the Government had no plan to turn the economy around.

 

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