• 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.

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% of the value of the economy.

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