Tax shortfall and cheaper carbon credits dent Crown accounts ahead of Budget

Tuesday, 9 May 2023

The Government will be going into the Budget with a higher operating deficit but less debt than it had forecast, the latter due mainly to an increase in its NZ Super savings.

Lower-than-expected tax revenues and a failure by the Government to sell any carbon credits at an auction in March have dented the Crown’s accounts ahead of next week’s Budget.

The Treasury reported that the Governments’ operating balance before gains and losses (Obegal) deficit reached almost $3.4 billion in the nine months to the end of March.

That was significantly higher than the forecast Treasury made in December, when it had expected the deficit to stand at $913m at the end of March.

Finance Minister Grant Robertson said it was inevitable that the Government’s books would be affected by the cooling economy.

“We are doing our bit to restrain spending and responsibly manage our finances. The upcoming Budget has required tough choices as we respond to the deteriorating economic conditions,” he said.

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Tax receipts for the nine-month period totalled $83.6b, which was $2.3b below forecast, while total government revenues undershot the December forecast by nearly $2.9b.

Decisions and comments from ministers that undermined confidence in their appetite to use the Emissions Trading Scheme (ETS) to aggressively curb carbon emissions contributed to the Government failing to sell any carbon credits at an auction in March.

There is speculation confusion over its approach to the ETS could result in a $1.3b budget hole this year unless steps are taken to restore confidence and boost carbon credit prices.

The lower-than-expected revenues more than negated the benefit of government spending coming in $723m lower than the Treasury had expected in December.

Despite the disappointments, government debt as a proportion of GDP continued to undershoot the Treasury’s December forecast.

Net government debt stood at just under $73b, or 19.1% of GDP, at the end of March, versus the forecast of 20.4% of GDP.

That was mainly due to strong returns from financial markets boosting the value of the assets the Government has saved in NZ Super by about $3.2b more than forecast, and lower than expected borrowing.