New Zealand's government accounts ran up a higher than expected deficit in the seven months to January, and the figures could get worse, the Treasury warned Tuesday.
The deficit before gains and losses was 4.3 billion NZ dollars (3.51 billion U.S. dollars), which was 473 million NZ dollars higher than forecast in the Treasury's Pre-election Economic and Fiscal Update (PREFU) released on Oct. 25 last year.
Offsetting the higher than expected deficit was the fact that government expenditure, at 39.4 billion NZ dollars, was 1.24 billion NZ dollars below forecast.
The Treasury, in its monthly financial statement on Tuesday, said the higher deficit was driven in part by 290 million NZ dollars paid out by the government insurer, the Earthquake Commission, after a further strong earthquake in Canterbury region on Dec. 23 last year.
But the other major factor was that the economy was not performing as well as anticipated, and core tax revenue of 31.4 billion NZ dollars was 2.9 percent below the PREFU forecast.
Source deductions were 383 million NZ dollars, or 3 percent, below forecast, reflecting weaker than forecast labor market conditions, the Goods and Services Tax, a consumption tax, was 345 million NZ dollars, or 4 percent below.
Corporate tax was 245 million NZ dollars, or 5.1 percent, below forecast, and likely to fall further, said chief financial officer Fergus Welsh in a statement from the Treasury.
"Corporate tax assessments in the month of January were below forecast, which is a pattern that is now expected to persist to the end of the financial year," said Welsh.
While government expenditure looked set to match the forecasts in the Treasury's 2012 Budget Policy Statement (BPS) published last month, revenue would probably keep falling, he said.
"January tax data was in line with the BPS assessment although weaker labor market conditions now apparent suggest some downside risk to the full year source deductions forecast," he said.
Finance Minister Bill English said the figures 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 labor market conditions," English said in a statement.
"That reinforces the need for the government to be disciplined and stick to its plan to get back to surplus in 2014-2015, so we can start repaying debt.
"Returning to surplus won't be easy, but it is one of the most important things the government can do to ensure New Zealand can withstand future shocks and build a more competitive economy based on exports and new jobs.
"Limiting our debt to overseas lenders also helps take pressure off interest rates and the exchange rate. In the current uncertain global environment, it's vital we continue to keep a tight lid on spending and debt and put in place policies that make our economy more competitive," English said.