N.Z. Budget Cash Deficit Widens as Tax Receipts Slump

By Tracy Withers

April 3 (Bloomberg) -- New Zealand’s cash budget deficit was wider than the government forecast at the end of February amid a slump in tax receipts.

The cash deficit was NZ$6.61 billion ($3.8 billion) in the eight months ended Feb. 28, or NZ$1.71 billion wider than forecast in the October pre-election update, the Treasury Department said in a statement released in Wellington today. Tax receipts were NZ$1.86 billion less than forecast.

Company and income-tax receipts are slowing as New Zealand’s worst recession in more than three decades curbs profits and spending, widening the budget deficit and limiting the government’s scope to boost demand with new spending.

“It’s clear that the global recession continues to have an impact on the government’s finances,” Finance Minister Bill English said in an e-mailed statement. “Our first priority is to ensure that we help New Zealanders get through the worst effects of the recession.”

Company tax receipts in February were NZ$485 million less than forecast and the Treasury expects that shortfall will persist through to the second half of 2009. Rising unemployment and a decline in hours worked reduced receipts from income tax, it said.

‘Balancing Act’

The government cut income taxes by more than NZ$1 billion from April 1, the first of a three-year program of reductions promised in the lead-up to an election last November. Cuts planned in 2010 and 2011 will go ahead if they are still affordable, Prime Minister John Key said March 30.

The government faces a “delicate balancing act” shoring the economy during the current recession, getting its finances in order, and investing for longer-term growth, English said. He will deliver the government’s budget on May 28.

The government’s operating deficit, which includes investments and other payments, was NZ$11.6 billion worse than expected after a plunge in the value of assets owned by the government’s pension plans and an increase in the value of liabilities at its accident insurance agency, the Treasury said.

Excluding changes in the valuation of investments, the government budget surplus was NZ$1.78 billion narrower than earlier forecast.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.