Government Sees Fiscal Improvement with $9.3 Billion Deficit

The government’s finances have shown unexpected resilience, concluding the fiscal year with a deficit of $9.3 billion. This figure, reported by the Treasury, is $533 million higher than the previous year but $869 million lower than the projections made in the May budget. Notably, this deficit calculation is based on a new formula that excludes the costs associated with the Accident Compensation Corporation (ACC).

Finance Minister Nicola Willis expressed optimism about these figures, highlighting the progress made in restoring fiscal stability. “This progress reflects the government’s ongoing work to restore fiscal discipline, with cumulative savings of around $44 billion being delivered over the government’s first two Budgets,” she stated. The savings have been allocated towards critical areas such as health, education, police, and defence, while also providing tax relief and funding for the Investment Boost programme introduced in the budget.

Willis defended the government’s approach to expenditure, explaining that they have resisted calls for more immediate cuts. “International evidence suggests that reducing deficits is best managed over several years,” she added. The May budget had forecast a gradual reduction of the deficit, aiming for a surplus by 2028/29. Updated forecasts are expected in the upcoming half-year economic and fiscal update set for December 16, 2024.

Tax Revenue Surpasses Expectations

Recent Treasury figures indicate a significant increase in tax revenue, which was $900 million higher than anticipated, totalling $121 billion. This uptick is attributed to higher collections from goods and services tax (GST), corporate taxes, provisional taxes, and employee PAYE contributions. Though some of these gains were offset by adjustments to tax thresholds, the overall result is a positive sign for the government’s financial health.

Additionally, the three state-owned power companies—Genesis, Meridian, and Mercury—contributed to a rise in Crown sales revenue, generating an additional $1 billion due to elevated wholesale power prices.

While total expenses increased by nearly 2% to $183.5 billion, this amount was still about $610 million below the budget forecast. The growth in expenses primarily stemmed from costs related to superannuation and welfare, although this was somewhat mitigated by reduced spending in other sectors. Treasury officials noted that the recent increase in expenses is the lowest observed since 2021, indicating a cautious but positive trend in managing government spending.

The combination of improved tax receipts and controlled expenditure suggests a more favorable fiscal outlook for the government, as it continues to navigate the complexities of managing public finances in an unpredictable economic environment.