Revenue and Expenses

Core Crown Revenue

Core Crown revenue consists mainly of tax revenue. Also included are interest and dividend revenues, and sales of goods and services.

Figure 2.1 – Core Crown revenue excluding the NZS Fund

Source: The Treasury

The key indicator used to measure core Crown revenue is core Crown revenue excluding the NZS Fund. This best represents the revenue available to meet the Government's spending needs.

Core Crown revenue excluding the NZS Fund treats the NZS Fund as a third party (ie, its revenue is not included but the tax it pays is).

Core Crown revenue falls as a percentage of GDP …

While core Crown revenue excluding the NZS Fund grows over the period from $58.5 billion in 2006/07 to $69 billion by 2011/12, it falls as a percentage of GDP as initiatives such as the personal tax cuts and business tax reform (announced in Budget 2007) take effect.

… as personal tax cuts are introduced …

Figure 2.2 – Core Crown tax revenue

Source: The Treasury

Core Crown tax revenue increases over the period from $53.5 billion in 2006/07 to $62.7 billion by 2011/12, but falls as a percentage of GDP.

The fall in percentage of GDP is due, in the main, to the introduction of personal tax cuts. The resulting core Crown tax revenue reduction is detailed in Table 2.2 and ranges from $1.6 billion in 2008/09 to $4.2 billion in 2011/12.

• These tax cuts have now been incorporated into the tax forecasts, whereas in the Half Year Update it was separately identified as a revenue reduction contingency that appeared below the tax revenue line in the forecast financial statements. Further detail of personal tax cuts can be found on page 81.

Source: The Treasury

The tax package will result in a reduction in core crown tax revenue of nearly $11.6 billion over the forecast period. Part of this revenue reduction represents reduced tax on benefits and superannuation payments.Under the personal tax reductions, after-tax benefit payments do not change while after-tax New Zealand Superannuation (NZS) payments increase. Given this, gross benefit appropriations are reduced to the extent that tax paid on them is lower following the personal tax changes. With NZS, the increased after-tax payments are accompanied by decreased tax paid stemming from the tax changes, meaning gross NZS appropriations change. The change in disposable income (being $10.6 billion over the forecast period) represents the reduction in tax paid by those working and the increase in the after-tax income of superannuitants.

In addition to the personal tax cuts, there have been two changes to tax forecasts in comparison to the Half Year Update:

• Forecasting changes mainly related to changes in the macroeconomic forecasts. However, some other factors have also led to forecasting changes, eg, changes in the estimated effective tax rate on “other persons” taxpayers’ income and changes in the assumed future rate of growth of fuel consumption in response to historically-high fuel prices. Further detail on the tax forecasting changes can be found on page 85.
• Other tax policy changes have also reduced forecasts of tax revenue compared to the Half Year Update. Details of these policies can be found on page 95.