The Government's financial position is almost certain to worsen as the year progresses and tax revenue slips as company profits fall.
With the current reporting season for the six months ended December in full swing, the news is hardly likely to get better for the Government.
Already its accounts show that spending on welfare is on the rise as more people claim the unemployment benefit. Unemployment is forecast to rise this year.
Companies have been reluctant to predict profits for the year ended June because of the uncertainty in global markets.
Treasury figures out yesterday showed that tax revenue for the six months ended December 31 was $1 billion below the pre-election fiscal update, which was released in November by the last Labour-led government.
Core crown revenue, excluding the New Zealand Superannuation Fund, fell by $1.2 billion to $29 billion in those six months. In the same period, expenses rose to $30 billion.
The superannuation fund operating balance went from a forecast $467 million profit to a $2.3 billion loss.
Residual cash blew out to a deficit of $8.3 billion and the operating balance turned from a forecast gain of $2.2 billion to a deficit of $6.2 billion.
Treasury deputy secretary Peter Bushnell said in the latest report that tax revenue was 3.6% lower than forecast but corporate tax was 11.9% lower than forecast.
The corporate tax variance related to lower terminal tax assessments due to lower-than-expected final profits generated by companies in previous tax years.
"We expect that the corporate tax shortfall will persist through to the end of the 2009 fiscal year and through to the 2010 fiscal year as the effects of the recent worldwide economic downturn flow through to New Zealand firms' profitability."
GST revenue was $366 million (6.2%) lower than forecast.
Mr Bushnell said the extent to which the shortfall was due to a more rapid deterioration of consumption than expected was uncertain.
The GST monthly revenue pattern had altered significantly because of a change in the filing date from the last working day of the month to the 28th of the month.
The change in filing date had enabled the IRD to process current assessments earlier than in previous years and more current assessments were contributing to the revenue calculation than had been the case in the past, he said.
"This appears to have produced a seasonal pattern in GST revenue unlike any we have seen before; something that is difficult to forecast.
"We will be in a better position to assess the strength or weakness of GST when we report January results because January is a significant month for GST with two due dates, and it is the first month that includes GST results relating to the Christmas and summer holiday period."
The main contributors to the lower operating balance included the losses the superannuation fund, ACC and EQC had on their investments.
The superannuation fund had a loss of $4.1 billion in the period, ACC a loss of $308 million. The EQC loss reached $331 million.
ACC also recorded a $2.4 billion loss in the valuation of its outstanding claims liability.
Tables included in the latest Treasury report showed that social security and welfare spending still dominated the Government's accounts.
Spending in December was $9.4 billion, up from the $8.8 billion in the previous corresponding period.
Health spending increased to $6.1 billion from $5.5 billion and education spending increased to $5.2 billion from $4.7 billion.
Treasury said the increase in health spending was due to funding provided in the 2008 budget to maintain and improve existing service levels.
Education spending increased because of higher demand-driven expenses from roll growth.
