Govt ups deficit estimate again

Press, 8 February 1986, Page 3

Govt ups deficit estimate again

By

MARTIN FREETH

in Wellington

Speculation of a blowout in the Government’s fiscal deficit was fuelled yesterday by news that official forecasts are again being revised. Treasury figures on net Government expenditure and revenue for the nine months to December 31 show that spending is running well ahead of Budget estimates for the year and that the deficit before borrowing is up to $3.6 billion.

The Minister of Finance, Mr Douglas, repeated earlier assurances that tax flows to the Government in March would quickly close the deficit gap, but he indicated also that the final figures would be higher than $1.6 billion, the Government forecast. The forecast, made initially for the year to March 31, of $1.28 billion was a much vaunted aspect of the Budget last June.

Some private-sector economists have recently predicted the deficit will turn out to be at least $l.B billion and perhaps more than $2 billion. A running deficit higher than for the corresponding period in the previous year and than the official end-of-year forecast has

shown up in Treasury figures released in recent months. Tax receipts in March traditionally cut the difference between revenue and expenditure evident throughout the rest of the year. Inland Revenue figures show that for the 1984-85 year, receipts in the last months totalled as much as those for all of the first five months. Mr Douglas said that while the deficit gap would close quickly in the remainder of the year, there were indications the forecast deficit might need further adjustment. “I have therefore directed my officials to work through the most recently available data.” Mr Douglas said he expected to make public a new forecast in ”10 days or so.” Indications referred to were of over-expenditure by some departments “due mainly to the recent public sector wage settlements.”

Mr Douglas said that there were signs also that some departments would spend less than estimated for the year. Total net expenditure for the nine months to December 31 was $13.27 billion, 20.7 per cent ahead of the corresponding period in 1984-85.

In the June Budget, the provisional estimate was that the full year’s expenditure would only be 13.5 per cent higher than for all 1984-85. The figures for the nine months show that expenditure by the Post Office, which is embarked on a big investment in telecommunications equipment, was the area of Government expenditure most ahead of last year. Debt servicing, affected by the exchange rate and the high domestic interest rate, was another area of big spending growth. The expenditure figures reflect the basic public servant pay rise settled before Christmas and back-paid to November 10. Dr Gareth Morgan, one of the economists picking a $2 billion deficit, suggested expenditure was running much higher than it should be. He said there was no way of accurately predicting how much tax receipts would rise at the end of the year. Dr Morgan, a critic of how the Government is administering its monetary policy, said Mr Douglas was revising his forecast "not before time.” Mr Douglas said the Government remained committed to fully funding the deficit.