Accounts highlight lagged effect of recovery

The Government's financial statements for the three months to September 30 confirm that it will take time for the economic recovery to flow through to the Crown's revenue, Finance Minister Bill English says.

"We are seeing some welcome early signs of New Zealand moving out of recession and we expect this will see unemployment peaking next year lower and sooner than previously forecast.

"However, the road to recovery will be quite bumpy and this is reflected in the financial statements issued today. Certainly, the impact of the recession on the Government's revenue will be felt for some time."

The Crown accounts for the first three months of the financial year show Core Crown tax revenue was $1.1 billion lower than forecast in the Budget in May. Most of this reflected corporate tax revenue, which was $900 million below forecast, after weaker-than-expected business profitability.

The lower tax revenue was the main contributor to the $2 billion operating balance before gains and losses (OBEGAL) deficit coming in $900 million larger than forecast.

"A clearer picture of the implications for the Crown accounts in 2010 is likely to emerge in the next few months, when seasonal volatility in provisional tax is expected to have settled down," Mr English says.

"In any case, with the Government borrowing an average $250 million a week, every week, for the next four years, it's clear that the constraints imposed on the Crown accounts by the recession and its aftermath will be felt for some time to come," Mr English says.