The New Zealand Government has reported an operating balance before gains and losses (OBEGAL) of $10,920 million for the ten months to 30 April. This compares with a deficit of $5,194 million for the same period in the previous year and a surplus of $6,034 million three years earlier.

Gross Crown debt has escalated to $71,564 million or 37% of GDP.

Government finances (1 July to 30 April period)

($ million) Ten months ended
April 2011 April 2010 April 2009 April 2008
Total Crown Revenue 46,448 46,257 48,804 50,885
NZ superannuation 7,283 6,856 6,394 6,080
Other social security 10,630 10,299 9,294 8,506
Health 11,402 10,886 10,161 9,345
Education 9,596 9,527 8,833 8,062
Other services 14,908 12,832 13,522 12,123
Finance costs 2,468 1,909 2,051 1,983
Total Crown Expenses 56,287 52,309 50,255 46,099
SOE surplus (deficit) (1,081) 858 (373) 1,248
OBEGAL (10,920) (5,194) (1,824) 6,034
Gross Crown debt 71,584 51,939 40,561 31,395

OBEGAL is the operating balance before gains and losses

The big problem is the total Crown revenue line, which has seen a reduction in income from $50,885 million for the first ten months of the 2008 year to $46,448 million in the latest period.

The main reasons for this are;

Individuals paid tax of $19,735 million in the latest period compared with $22,457 million three years ago. The decline is due to last year’s tax cuts and higher unemployment

The corporate tax take has fallen from $6,626 million to $5,474 million over the three year period because of lower pre-tax profits

GST revenue has increased from $8,895 million in 2008 to $10,806 mainly due to the rate increase from 12.5% to 15.0%

On the expense side NZ superannuation and health costs continue to rise because of the aging population while higher finance costs are a direct consequence of the huge increase in gross Crown debt.

Finance Minister Bill English is forecasting much lower deficits in the years ahead. This is based a stronger economy and a substantial higher tax take.

Hopefully English is correct because the Government must reduce its deficit and put a cap on its borrowing. When things go wrong with Government finances they can deteriorate very quickly until dramatic action is taken.

Ireland is a good example of this. Irish Government debt has escelated from 25% to 96% of GDP over the past three years because of a number of poor decisions and the Irish economy has suffered hugely as a result.