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Budget 2007 Home Page Budget Economic and Fiscal Update [2007]

Revenue and Expenses

Table 2.4 - Revenue and expenses' comparison with Half Year Update
Year ended 30 June
OLD GAAP NEW GAAP
(% of GDP) 2006
Actual
2007
Forecast
2007
Forecast
2008
Forecast
2009
Forecast
2010
Forecast
2011
Forecast
Total revenue  
Budget Update 48.8 46.2 44.5 44.4 44.4 44.5 44.3
Half Year Update   46.1 44.9 44.0 43.9 43.7
Total expenses  
Budget Update 41.5 42.3 41.2 41.5 42.2 42.6 42.5
Half Year Update   42.3 41.4 41.1 40.8 40.7
Core Crown revenue              
Budget Update 37.7 36.1 34.6 34.3 34.1 34.1 34.1
Half Year Update     36.3 35.1 34.2 34.3 34.3
Core Crown expenses              
Budget Update 31.8 32.6 32.0 32.4 32.8 33.0 33.1
Half Year Update     33.2 32.6 32.3 32.1 32.0
SOE revenue  
Budget Update 8.1 8.1 7.4 7.5 7.6 7.5 7.2
Half Year Update   7.3 7.2 7.2 7.1 6.9
SOE expenses  
Budget Update 6.9 6.9 6.8 6.9 6.9 6.9 6.7
Half Year Update   6.8 6.6 6.6 6.5 6.4
Crown entities' revenue              
Budget Update 16.1 16.1 15.9 15.9 15.6 15.2 14.6
Half Year Update     16.0 15.7 15.2 14.5 14.0
Crown entities' expenses              
Budget Update 15.2 15.2 15.4 15.5 15.3 14.9 14.4
Half Year Update     15.4 15.1 14.6 14.1 13.5

Source: The Treasury

Total revenue to GDP is forecast to remain relatively stable between 44.3% and 44.5% through the forecast period. There is a level shift downwards in revenue owing to the transition to New GAAP, as a result of transactions that were previously included in revenue being reclassified to gains and losses (refer page 91). Total expenses to GDP are forecast to increase from 41.2% to 42.5% by the end of the forecast period.

The trend in total revenue and expenses over the forecast horizon will largely be driven by activity in the core Crown segment of reported Government activity. The following section discusses the core Crown activity in more detail.

Core Crown – Revenue

Table 2.5 - Core Crown revenue
Year ended 30 June
OLD GAAP NEW GAAP
Core Crown Revenue 2006
Actual
2007
Forecast
2007
Forecast
2008
Forecast
2009
Forecast
2010
Forecast
2011
Forecast
($ billion)
Tax revenue 52.4 52.1 52.2 54.7 56.3 58.9 62.0
Investment revenue 4.5 5.1 2.7 2.6 2.8 2.8 2.9
Other core Crown revenue 2.3 2.3 2.1 2.1 2.1 2.1 2.1
Total core Crown revenue 59.2 59.5 57.0 59.4 61.2 63.8 67.0
(% of GDP)
Tax revenue 33.4 31.6 31.7 31.6 31.4 31.5 31.6
Investment revenue 2.9 3.1 1.6 1.5 1.6 1.5 1.5
Other core Crown revenue 1.5 1.4 1.3 1.2 1.2 1.1 1.1
Total core Crown revenue 37.8 36.1 34.6 34.3 34.1 34.1 34.1

Source: The Treasury

Table 2.6 - Tax revenue indicators compared with the Half Year Update
Year ended 30 June
OLD GAAP NEW GAAP
Tax revenue 2006
Actual
2007
Forecast
2007
Forecast
2008
Forecast
2009
Forecast
2010
Forecast
2011
Forecast
(% of GDP)
Tax revenue - Budget Update 33.4 31.6 31.7 31.6 31.4 31.5 31.6
Tax revenue - Half Year Update 32.1 31.6 31.3 31.3 31.3

 

Source: The Treasury

Tax revenue is the major source of core Crown revenue.

A discussion of trends in total tax and the major tax types is included in the Economic and Tax Outlook chapter. The main points are:

  • an increase in the level of the nominal GDP forecast has led to an increase in the forecast of total tax revenue of about $1 billion in 2008
  • a shift in the balance of income in the macroeconomic forecast from profits to labour has increased the overall tax-to-GDP rate relative to the Half Year Update, thereby increasing the tax revenue forecasts from 2009 onwards, and
  • the Business Tax Reform and other policy changes since the Half Year Update collectively reduce total tax revenue by as much as $500 million each year from 2009 onwards.

Inland Revenue Department’s (IRD) tax forecasts

In line with established practice, the IRD has prepared an independent set of tax forecasts, based in the short term on analysis of taxpayer information, and in the longer term on the same broad macroeconomic trends that underpin the Treasury’s tax forecasts.

The Treasury’s forecasts are the Crown’s official forecasts. Unless otherwise stated, all forecasts in this document are Treasury forecasts. IRD tax forecasts are provided here for comparative purposes.

Table 2.7 - The Treasury and IRD tax revenue forecasts
$million 2006/07
Forecast
2007/08
Forecast
2008/09
Forecast
2009/10
Forecast
2010/1
1Forecast
Source deductions
Treasury 21,012 22,334 23,695 25,094 26,619
Inland Revenue 20,943 22,265 23,545 24,970 26,494
Difference 69 69 150 124 125
Corporate taxes
Treasury 9,120 9,166 8,411 8,860 9,321
Inland Revenue 9,243 9,254 8,385 8,558 8,902
Difference (123) (88) 26 302 419
Goods and services tax
Treasury 10,722 11,495 11,993 12,333 12,896
Inland Revenue 10,771 11,315 11,819 12,161 12,734
Difference (49) 180 174 172 162
RWT (interest)
Treasury 2,156 2,340 2,441 2,362 2,376
Inland Revenue 2,200 2,491 2,566 2,523 2,627
Difference (44) (151) (125) (161) (251)
Other taxes
Treasury 8,647 8,838 9,151 9,621 10,140
Inland Revenue 8,568 8,728 8,992 9,421 9,968
Difference 79 110 159 200 172
Total tax
Treasury 51,658 54,173 55,691 58,269 61,351
Inland Revenue 51,725 54,053 55,307 57,633 60,725
Difference (67) 120 384 636 626
Total tax (% of GDP)
Treasury 31.3% 31.3% 31.1% 31.2% 31.3%
Inland Revenue 31.4% 31.2% 30.9% 30.8% 31.0%
Difference -0.1% 0.1% 0.2% 0.4% 0.3%

Sources: IRD, The Treasury

The differences between the Treasury and IRD tax forecasts are much smaller than has been the case in the last few updates.

The main points of difference in this Budget Update are:

  • Based on analysis of recent outturns, the Treasury has forecast source deductions about 0.5% higher than IRD in 2006/07, and this difference persists through all forecast years.
  • The two departments use different approaches for forecasting taxable corporate profits, which causes a gap to open up between the Treasury and IRD corporate tax forecasts in 2009/10 and 2010/11. However, the gap between the two corporate tax forecasts has narrowed substantially since the Half Year Update, as the Treasury’s corporate tax forecast no longer contains a prominent tax loss cycle. Further detail on the Treasury’s corporate tax forecast is provided in the Economic and Tax Outlook chapter.
  • The Treasury’s GST forecast is higher than Inland Revenue’s GST forecast from 2008/09 onwards as the two departments have different interpretations of the effects of the principal drivers of GST namely private consumption, public consumption and residential investment.
  • The RWT on interest forecasts diverge due to the different growth drivers that each department uses. Both departments use forecasts of interest rates and a trend growth estimate for the deposit base, but the Treasury also includes cyclical components from selected wealth and income indicators.

Detailed comparisons of the Treasury and Inland Revenue tax forecasts can be found at www.treasury.govt.nz/forecasts/befu/2007/.

Gains and Losses

The adoption of New GAAP will result in more fair value changes (gains and losses) being reported in the Statement of Financial Performance. In some cases (eg, with gains on the sale of property), these gains must be reported separately from other revenue.

Given the impact of this change, gains and losses will be reported in a separate section of the Statement of Financial Performance. This will enable users to better identify and assess:

  1. the cause of variances between actual results and forecasts, as variances from gains/losses (which are typically not forecasted) will be readily evident, and will not obscure comparisons between forecast and actual revenues and expenses
  2. the impact and volatility of gains and losses on results, and
  3. the relationship between gains and losses (eg, gains and losses in derivatives often have a close relationship with gains or losses in other financial instruments).

It should also reduce the “noise” that could arise from changes in fair value of items such as share investments being income (gains) one month and an expense (losses) the next.

The most significant gains and losses arise from financial assets and financial liabilities that are measured at fair value, and where changes in fair value must be reported in the Statement of Financial Performance. The financial assets held by the NZS Fund fall into this category. Such gains or losses will exclude interest revenue, dividend revenue and interest expense – these items will continue to be reported with revenues and expenses as appropriate. Actuarial gains and losses on items such as the GSF liability and changes in other provisions arising from market movements (eg, exchange rates) will also be separately identified in this new section.

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