The New Zealand government spent more than expected in the first four months of the financial year and posted a small deficit in the period.

Treasury reported an operating deficit of $258 million before gains and losses in the four months ended Oct. 31, compared to a deficit of $308 million a year earlier. It had forecast a surplus of $29 million in the period. 

The Crown’s core expenditure rose 6.4 percent to $28.34 billion, some $344 million more than forecast in the May budget. About $172 million of the difference from forecast was due to accounting adjustments which reflect the way departments use their appropriations rather than their best estimates when setting their forecasts. Core government services spending was $228 million ahead of forecast at $1.34 billion. 

Transfer payments and subsidies – such as superannuation, welfare, Working For Families tax credits, and KiwiSaver subsidies – were up 13 percent from a year earlier, although tracking below Treasury’s forecast. 

The Crown accounts started the year on a stronger footing as the tax-take was bolstered by rising company profits, a bigger working population and increased investment gains. The Treasury will update its forecasts next month at the half-year economic and fiscal update.

“It’s still early in the new financial year and, as with the September results, readings earlier in the year can show an obegal deficit due to the different timings of revenue and expenses,” Finance Minister Grant Robertson said in a statement. “It should be remembered that expenses at the end of the previous financial year came in below forecast, meaning there might be reversals early in the current 2018/19 year.”

Tax revenue rose to $26.12 billion in the period, up 8.1 percent from a year earlier, and was $197 million ahead of forecast. Strong jobs growth underpinned higher income tax, and residential investment supported GST.

However, company tax revenue was below forecast, with gross corporate tax revenue marginally lower at $3.09 billion. Robertson said the Treasury expects that variance to narrow through the year. 

Firms have grown increasingly pessimistic about the economic outlook as the pace of New Zealand growth slows. Surveys have shown companies are concerned about profitability as they face rising costs but feel unable to pass that on to consumers through higher prices. 

The Crown accounts show net debt was below expectations at $61.03 billion, or 21.1 percent of gross domestic product, due to the stronger start to the financial year. Residual cash showed a $3.45 billion deficit, some $795 million more than forecast due to higher operating and capital payments than expected. Still, the Crown’s net worth was $126.14 billion, ahead of forecast on revaluations to land and state highways. 

The government’s operating balance, including $1.3 billion of investment losses on entities including the New Zealand Superannuation Fund and Accident Compensation Corp, was a deficit of $4.19 billion. Changes in the discount rates to calculate ACC’s long-term claims and the Government Superannuation Fund’s long-term liabilities drove $2.7 billion of losses on non-financial instruments which also weighed on the balance. 

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