Less than a month out from the Budget, Treasury’s fiscal forecasts have already been surpassed on the back of stronger economic growth.

The Crown accounts for the 10 months to the end of April 2021 show both the operating balance before gains and losses (OBEGAL) and the operating balance are better than forecast in Budget 2021 in May, Treasury said today.

The OBEGAL was a deficit of $5 billion, $3.6b better than forecast in May’s budget.

Tax revenue was $79.1b, $2b above forecast due to higher than expected corporate and income tax, and GST revenue.

Net core Crown debt was 33.9 per cent of GDP, $2.6b less than forecast.

This is the first month that monthly actual results are compared against the BEFU 2021
forecasts, the March 2021 actual results were compared against 2020 Half Year Economic
and Fiscal Update (HYEFU 2020), Treasury said.

The “positive variances” reflected economic conditions being better than forecast, Treasury said.

“Corporate tax was above forecast primarily owing to higher investment income and consequently higher PIE tax. Other direct taxes were above forecast as a result of stronger resident withholding tax on dividends.”

Labour market conditions were better than forecast which had driven the positive variance in source deductions and consumption was also stronger, leading to GST revenue being higher compared to forecast.

Some media commentators have suggested that Treasury was overly optimistic in its Budget outlook.

In fact, Treasury forecasts for GDP growth are now more conservative than most market economists.

Yesterday, Singapore-based Fitch Solutions revised up its outlook for the New Zealand dollar on the strength of the post-Covid recovery.

It now sees New Zealand’s economy growing at 3.6 per cent for 2021 compared to the Treasury forecast for 2.9 per cent.

“The strength of the NZ dollar is closely linked to the country’s investment outlook, which has brightened in recent months on the back of the country’s effective virus containment and economic rebound,” Fitch Solutions economists said in a new report.

“We expect this trend to persist as economic activities continue to normalise, and this will support investor optimism, boosting financial inflows and drive the NZD stronger.”

After the Budget, S&P Global Ratings said that “New Zealand’s 2021-2022 Budget Economic and Fiscal Update confirmed it is recovering quicker than most advanced economies”.

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