Govt tax windfall means reduced Budget deficit

Press, 24 April 1987, Page 1

Govt tax windfall means reduced Budget deficit

By

BRENDON BURNS

in Wellington A huge multi-million dollar tax windfall, largely from business and professional people, allowed .the Government’s Budget deficit for last financial year to remain under $2 billion. The . Minister of Finance, Mr Douglas, yesterday announced that the deficit to March 31 was $1952 million. That is $1 billion less than the figure he predicted before Christmas. Mr Douglas would not make any prediction about the effect of the lower figure on interest rates and inflation, but he said that combined with other recent indicators there should be a downward move “over time.” The Minister’s Budgetnight estimate of the de-

ficit was $2.45 billion. This ballooned to $2.9 billion in December because of extra Government spending, but an extra $1.2 bullion more tax was paid than expected. Some of this came from more GST and P.A.Y.E. deductions than forecast. However, the main’ component was $BOO million more than foreseen in tax payments from self-employed, professional, and business people. Mr Douglas singled out people such as lawyers, doctors, dentists, and business people as being among those providing the windfall revenue. He said the requirement to register for GST had brought some other tax “out of the woodwork.”

While only 200,000

people had been expected to register for GST, the total so far was 282,000. The Government’s moves since it took office to close tax breaks and loopholes had also assisted in providing the revenue windfall, he said. Mr Douglas said the $1.95 biljion deficit was the lowest, by way of gross domestic product (total economy), since 1977. It accounted for 3.8 per cent of G.D.P. Last year the Budget deficit was slightly lower in financial terms ($1.87 billion) but that was 4.1 per cent of G.D.P. Opposition claims that yesterday’s result was achieved by "creative accounting” were rejected. National’s spokesman on finance, Mr George Gair, said the deficit did not include $1.2 billion in

Housing Corporation and Rural Bank borrowingThat made, the deficit $3 blliioh; and closer to $4 billion without the tax windfall. He said the deficit figure was a sham. But Mr Douglas said the borrowing reflected the move to put the Housing Corporation and Rural Bank on a commercial footing. He said previously the Government lent these organisations money at 8 per cent, which was a hidden subsidy. The remaining element of subsidy was still reflected in the deficit figure, he said. Mr Douglas said the deficit out-turn had left the Government with about $1 billion in surplus borrowing. (This is essentially the difference between the $2.9 billion

blow-out in December and yesterday’s final result.)

The money would be used towards this financial year’s deficit, but Mr Douglas said this remained at an estimated figure of $2.2 billion.

He said there were still some “think big” project financing costs to absorb, and one-off costs such as the money provided to the new Post Office Bank as capital.

Yesterday’s announcement of the final Budget deficit figure for 1986-87 had little impact on financial markets.

A money dealer said it was a “non-event” given predictions that the figure wotild be about $2 billion to $2.2 billion.