The government's budget deficit is running $3 billion below forecast for the 11 months to May, with stronger tax revenue and reduced spending combining to improve the fiscal position.
The operating balance before gains and losses, which excludes ACC finances, recorded a deficit of $6.8 billion for the period. When ACC is included, the deficit stood at $9.5 billion, $3.4 billion less than expected.
Revenue boost from company tax
Core tax revenue came in around $900 million above forecast at nearly $115 billion, with company tax and provisional tax payments delivering the bulk of the upside. State-owned enterprises and emission trading scheme returns contributed an additional $1.7 billion to revenue.
Higher-than-forecast revenue was matched by spending coming in under budget. Government expenditure ran about $900 million below expectations, with underspending across several areas including core government services, economic and industrial services, transport and communications, and education.
Net debt stood at $186 billion, marginally below forecast and representing 41.3% of GDP.
Economy regaining momentum
Finance Minister Nicola Willis described the figures as encouraging and a sign 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," Willis said.
The Finance Minister noted that oil prices had fallen, inflation expectations had eased, and exports and tourism earnings had been strong.
Willis said "that means less debt and more proof that the steps the government has taken to fix the basics and build the future are working".
The Budget forecast a deficit near $12 billion for the full June year. Willis said the final accounts, due for release in early October, would show a better position than that forecast.
The government's budget forecasts project a return to surplus in 2028/29.
The International Monetary Fund recently released its annual assessment of New Zealand's economy, emphasising the importance of measures to remove deficits and restore the budget to balance, thereby rebuilding fiscal buffers for future economic shocks.