Tax revenue has again fallen below Treasury forecasts, the latest figures released by Treasury show, but the figures are not all they seem.
While Finance Minister Bill English focuses on the negative, New Zealanders paid more tax in the seven months ended January 2012 than they did in the previous corresponding period ended January 2011.
In the seven months ended January, core Crown tax revenue was $31.4 billion, down 2.9% on the pre-election fiscal update provided on October 25.
Total Crown revenue was down 3.9% on forecast to $33.9 billion in the same period.
But when compared with the previous corresponding period, actual tax revenue was up 4.8% from $29.9 billion, a change of around $1.44 billion.
Figures provided by Treasury to finance ministers have come under fire in the past as being either too optimistic or too pessimistic.
As expected, Mr English focused on the lower-than-forecast figure in his press release, saying it reinforced the need for the Government to responsibly manage its spending.
"The reduced tax revenue is broadly consistent with the updated economic outlook presented in the budget policy statement last month but the Treasury has identified some clear downside risks to the tax take for the remainder of the year, including slightly weaker labour market conditions."
That reinforced the need for the Government to be disciplined and stick to its plan to get back to surplus in 2014-15 so it could start repaying debt, he said.
Returning to surplus would not be easy but it was one of the most important things the Government could do to ensure New Zealand could withstand future shocks and build a more competitive economy based on exports and new jobs, Mr English said.
Treasury chief financial officer Fergus Welsh said the key drivers of the lower-than-forecast tax revenue for the January 2012 period included source deductions being $383 million (3%) lower than forecast, reflecting weaker-than-forecast labour conditions.
GST revenue was $345 million (4%) below forecast with earthquake-related GST refunds to insurance companies continuing to account for most of that variance.
Corporate tax was $245 million (5.1%) below forecast. Corporate tax assessments in the month of January were below forecast which was a pattern that was now expected to persist to the end of the financial year, he said.
Deloitte Dunedin tax partner Peter Truman said the actual level of corporate tax compared with that forecast appeared to relate to an optimistic view of economic growth, with the actual level of GDP growth not living up to expectations.
That could be related to the lack of progress on the rebuilding of Christchurch but also to the European credit crisis with businesses reluctant to make spending decisions.
Large companies, such as Fletcher Building, were reporting lower profits because of the slow start to the rebuild.
Asked about the tax cuts announced last financial year, Mr Truman said the tax package was designed to be neutral but there was a possibility that more corporate tax would be paid as more companies claimed less on depreciation of buildings.
The Treasury January 2012 figures show that the operating balance before gains and losses (obegal) had blown out to $4.3 billion, or 12.3% higher than forecast. The operating balance was up by $2.5 billion, or 38.2%, to nearly $9 billion from the forecast $6.5 billion.
In January 2011, the actual obegal was $6.21 billion which means this year's obegal was a 30.5% actual improvement. However, the actual operating balance is nearly $8 billion higher in 2012 than in 2011.
Mr Welsh said the seven-month obegal deficit was higher than forecast in part because of EQC-related expenses related to the December 23 earthquake.
The main contributors to the operating balance deficit of $8.9 billion were losses on the Government Superannuation Fund liability and ACC's outstanding claims liability.
