New system to blame for Crown budget deficit

The Government’s accounts have plunged the Crown budget into deficit for the first quarter of the year, but it’s not expected to last.

The good news for the Government is that the plunge appears temporary and mostly caused by the roll out of a new computer system at the IRD, which means some tax will only be counted later in the year.

The Crown accounts showed droopy tax revenue, coming in 6.8 per cent below Treasury’s forecast figure and a deficit on the operating balance before gains and losses (OBEGAL) of $0.6 billion.

‘‘The operating balance before gains and losses (OBEGAL) was in deficit by $0.6 billion and was $1.6b below forecast, primarily due to lower tax revenue,’’ Treasury said in the financial statement.

Core Crown revenue for the quarter was $20.4b, against expenses of $22.7b.

Minister of Finance Grant Robertson said the deficit was because of the new computer system.

‘‘When we announced the surplus for 2018/19, the Treasury said changes to Inland Revenue’s system meant some tax previously expected to be recognised in the 2019/20 accounts was bumped forward into 2018/19,’’ Minister of Finance Grant Robertson said.

‘‘The new system has also changed when monthly tax revenue is recognised in the accounts within the current financial year, particularly for corporate tax,’’ he said.

The Government expects the IRD’s new IT kit to be fully bedded in by the end of financial year meaning more accurate forecasts by the middle of 2020, but some lumpiness in the meantime.

It is also usual for tax revenue to be lower at the start of the financial year and increase as the year progresses, while expenses remain relatively stable.

New Zealand’s GDP growth and tax revenues were expected to be under pressure in this past quarter anyway, thanks to global headwinds and the US-China trade war making global markets jittery.

Annual GDP growth has fallen from 3 per cent to 2.4 per cent over the past year, a result partly attributable to the global economic climate.

‘‘The figures do bounce around but my observation would be it is a big bounce, and the point of concern for us is that with the slowing growth we are seeing . . . there’s a very real risk that we could see this flow through to weaker government receipts in the next year,’’ Opposition finance spokesman Paul Goldsmith said.

New Zealand’s economic growth remains healthy compared to the average 1.6 per cent average annual growth rate of the OECD – a club of advanced economies – and unemployment remains low at 3.9 per cent.