Government deficit $3b lower than Budget forecast

Government deficit well below forecast on better income, lower spending

Deficit to end of May $3b less than forecast

Stronger economy boosted company tax payments

Finance Minister Willis expects June year deficit to be smaller than forecast

The government is set to report a significantly smaller budget deficit this year on the back of higher tax revenue and lower spending.

Treasury figures excluding ACC finances showed a deficit of $6.8 billion for the 11 months ended May, about $3b less than forecast in the budget. Including the ACC finances the deficit was $9.5b, $3.4b less than expected.

Finance Minister Nicola Willis called the numbers "encouraging" and evidence the economy was strengthening.

"All the indications are that the conflict in the Middle East slowed growth in the second quarter of this year, but that the economy is already regaining the momentum it had developed before the conflict began."

She said oil prices had fallen, inflation expectations eased, and exports and tourism earnings had been strong.

The core tax take was about $900 million above forecast at nearly $115b on the back of higher company and provisional tax payments.

Earnings from state owned enterprises, such as the three major power companies that the Crown has a majority stake in, were stronger, as were the returns from the emission trading scheme, between them adding another $1.7b to revenue.

Government spending was about $900m less than expected on core government services, economic and industrial services, transport and communications and education.

Net debt was also marginally lower than expected at $186b or 41.3 percent of the value of the economy.

Final accounts for the year ended June will be published in early October, and Willis said they would be in better shape than the near $12b deficit forecast in the Budget, which forecast a return to surplus in 2028/29.

"That means less debt and more proof that the steps the government has taken to fix the basics and build the future are working," she said.

The International Monetary Fund has just issued its annual report on the New Zealand economy and stressed the need for policies to eliminate deficits and balance the budget to rebuild financial reserves to be prepared for future shocks.