Fiscal deficit seen as success

Press, 24 April 1986, Page 1

Fiscal deficit seen as success

By

MARTIN FREETH

in Wellington Control of Government expenditure in the 1985-86 year paved the way for a fiscal deficit of $1.87 billion, unveiled yesterday as a success for the Minister of Finance, Mr Douglas. Government departments did overspend, but only 1.7 per cent ahead of estimates in the Budget last June. That was the lowest level of overspending in 10 years. The deficit was more a reflection of Government revenue falling behind forecasts. Yesterday’s announcement ended months of speculation about a blowout in the deficit and Opposition claims that expenditure was out of control.

The debate was fuelled by the Government’s release as the year progressed of upward revisions in the deficit forecast,. initially set in the Budget at $1.28 billion. The final result was 45 per cent higher than first forecast, but Mr Douglas scored politically against recent National claims that the deficit would go as high as $2.3 billion. Such a result would have been a bad blow for the Douglas strategy to cut sharply the gap between Government expenditure and revenue in the fight against inflation. Mr Douglas himself contemplated a result of at least $2 billion when late last month he disclosed a $350 million shortfall in the crucial March tax take.

Before then, his forecast was for a deficit of $1.7 billion. The Treasury figures released yesterday show the income tax shortfall was $357 million, but that was largely offset by Government expenditure in the last months of the year ($64 million lower than forecast) and receipts from other taxes, interests and profits which were much higher than expected. The Government’s tax take for the year was 3.2 per cent down on the budget forecast. Mr Douglas shrugged off the forecast error by pointing to much higher errors in two of the last 12 years. Receipts on the new fringe benefit tax, sales tax, and customs duty were also well down on

initial forecasts. Mr Douglas said these shortfalls resulted from “normal" forecasting errors or Government policy changes. On the expenditure side, 28 of 37 Government departments spent less than was voted to them in the Budget. The Treasury was one of the nine departments to overspend. The expected growth in spending towards the end of the year after the high public sector pay rises did not eventuate, because many departments absorbed into their budgets increases higher than 15.5 per cent. Mr Douglas . also attributed the expenditure control to moves to give departments greater accountability < for their spending within lump sum appropriations.

The largest spending department, Social Welfare, ended the year $7 million under its vote. Social services were still by far the biggest single item of Government expenditure, at $5.4 billion, about $3 billion of which went in superannuation pay-outs. Next largest was debt servicing, where $3.3 billion was spent, 30 per cent more than in the previous year. The growing cost of interest on the debt built up by the Government in the past is one of the big reasons Mr Douglas is eager to slice future deficits, which will in turn fuel debt servicing.

Total Government expenditure amounted to 39 per cent of New Zealand’s

gross domestic product, which is up from 37.4 per cent in 1984-85. However, Mr Douglas sees big success in bringing the deficit down from $2.78 billion in that year to $1.87 billion in 1985-86. It now represents 4.1 per cent of G.D.P., well down from a peak of 9.8 per cent during the term of the National Government It would have the immediate impact of reinforcing confidence in the present fall in inflation and some wholesale interest rates. Mr Douglas said this year’s Budget would probably be delivered in early July, at which time his next deficit forecast will be revealed.