Core Crown Tax Revenue
Tax revenue continues to recover ...
Core Crown tax revenue is forecast to increase over the next four years, reaching $71.2 billion (27.8% of GDP) in 2015/16.
All of the major macroeconomic drivers of tax revenue (compensation of employees, entrepreneurial income, operating surplus and domestic consumption) are forecast to grow at above 4% per year.
Increased residential investment in the Canterbury region is expected to provide a significant boost to GST revenue in the 2012/13 and 2013/14 fiscal years. This increase is expected to offset reduced GST revenue in the current year (resulting from refunds paid on the insurance proceeds that will be used to fund much of this investment).
In addition to the impact of economic growth, the Budget Update includes a number of policy changes, including changes to tobacco excise, fuel excise and road user charges. These policy changes increase core Crown tax revenue by $1.7 billion over the forecast period. Further detail of the tax policy changes can be found at www.treasury.govt.nz/budget/forecasts/befu2012.
|
Year ending 30 June $billions |
2012 Forecast |
2013 Forecast |
2014 Forecast |
2015 Forecast |
2016 Forecast |
|---|---|---|---|---|---|
| 2011 Pre-election Update | 55.5 | 59.2 | 63.6 | 67.6 | 71.5 |
| Policy changes | - | - | - | - | - |
| Forecast changes | (1.1) | (1.0) | (0.7) | (0.5) | (0.4) |
| 2012 Budget Policy Statement | 54.4 | 58.2 | 62.9 | 67.1 | 71.1 |
| Policy changes | - | 0.2 | 0.4 | 0.5 | 0.6 |
| Forecast changes | 0.3 | (0.2) | (0.2) | (0.4) | (0.5) |
| 2012 Budget Update | 54.7 | 58.2 | 63.1 | 67.2 | 71.2 |
| Composition of 2012 Budget Update: | |||||
| Source deductions | 21.2 | 22.6 | 24.1 | 25.6 | 27.2 |
| Corporate tax | 8.6 | 9.0 | 9.8 | 10.5 | 11.0 |
| GST | 14.7 | 15.7 | 17.3 | 18.3 | 19.3 |
| Other taxes | 10.2 | 10.9 | 11.9 | 12.8 | 13.7 |
Source: The Treasury
Core Crown tax revenue forecasts are lower than in the Pre-election Update but higher than in the Budget Policy Statement.
The forecast of nominal GDP is the main driver of the tax forecasts. The outlook for GDP was lowered in the Budget Policy Statement, which resulted in reductions in the tax revenue forecasts ranging from $0.4 billion to $1.1 billion in each year of the forecast period.
Nominal GDP forecasts were reduced further in this Budget Update, which, with the exception of the 2012 year, caused further reductions in the underlying tax revenue forecasts. Policy changes that affected tax revenue more than offset these reductions, resulting in tax revenue forecasts increasing slightly from the Budget Policy Statement.
... and increases as a percentage of GDP
- Figure 2.1 - Core Crown Tax Revenue
- Source: The Treasury
Core Crown tax revenue is forecast to increase over the forecast period from 25.7% of GDP in 2010/11 to 27.8% of GDP in 2015/16.
Further discussion of the changes to core Crown tax revenue as a percentage of GDP and their drivers can be found in the box below.
In line with established practice, Inland Revenue has also prepared a set of tax forecasts which, like the Treasury's tax forecasts, is based on the Treasury's macroeconomic forecasts. The two sets of forecasts differ from each other because of the different modelling approaches used by the two agencies and the various assumptions and judgements made by the forecasting teams in producing their forecasts. In this Budget Update, the two sets of tax forecasts are very close to each other, with the largest difference in any one year being almost $350 million (around 0.2% of core Crown tax revenue).
A full comparison of the Treasury and Inland Revenue forecasts can be found at www.treasury.govt.nz/budget/forecasts/befu2012.
Core Crown Tax Revenue as a Percentage of GDP
While core Crown tax revenue increases as a percentage of GDP over the forecast period, it has been decreasing as a percentage of GDP since 2008. The reasons for the previous decline and forecast increase are outlined in the following tables. Values in these tables were estimated using data as at 1 May 2012 and could change in the future as current data are revised and more data become available.
|
Year ending 30 June % of GDP |
2008 Actual |
2009 Actual |
2010 Actual |
2011 Actual |
Total 3 years |
|---|---|---|---|---|---|
| Core Crown tax revenue | 31.0 | 29.5 | 26.8 | 25.7 | |
| Annual movement | (1.5) | (2.7) | (1.1) | (5.3) | |
| Annual movement owing to: | |||||
| Legislated tax system changes | |||||
| Up to 2008 Budget | (1.7) | (0.3) | (0.4) | (2.4) | |
| Post 2008 Budget | (0.3) | (0.4) | 0.1 | (0.6) | |
| Composition of GDP | (1.3) | 0.3 | (0.5) | (1.5) | |
| Timing | 0.4 | (0.7) | (0.2) | (0.5) | |
| Interest RWT | - | (0.4) | - | (0.4) | |
| Company tax losses | 0.3 | (0.6) | 0.1 | (0.2) | |
| Structured finance tax settlements | 0.9 | (0.6) | (0.3) | - | |
| Fiscal drag | 0.2 | 0.1 | 0.1 | 0.4 | |
| Other | - | (0.1) | - | (0.1) | |
| Total annual movement | (1.5) | (2.7) | (1.1) | (5.3) |
Source: The Treasury
- “Legislated tax system changes” shows movements in tax revenue caused by changes to tax rates, thresholds and taxable bases. Broadly speaking, the “Up to 2008 Budget” reductions were caused by the changes made in 2008 to the personal and business tax rates. “Post 2008 Budget” changes relate to the 2009 personal tax changes and the initial impacts of tax changes made in the 2010 Budget Update package.
- The composition of GDP affects the tax-to-GDP ratio because not all parts of GDP are taxed at the same rate. For instance, compensation of employees, which measures total wages and salaries in the economy, has a higher average implicit tax rate than does operating surplus, the measure of profits in the economy.
- Timing largely reflects movements between years caused by changes in the amounts of tax paid as provisional tax and final tax.
- Movements in interest rates and the size of interest bearing deposits affect the amount of resident withholding tax (RWT) collected. Deposit interest rates declined sharply throughout this period.
- Income tax payers can use accumulated tax losses to reduce the amount of tax that they pay on profits earned in later tax years. This loss offset effect is most prevalent in company tax and can result in swings of several hundreds of millions of dollars in income tax from one year to the next.
- ”Structured finance tax settlements” refers to the major trading banks' settlements of their structured finance tax liabilities (mostly recognised in 2009).
- “Fiscal drag” is the additional source deduction revenue generated as an individual's average tax rate increases as their income increases.
While core Crown tax revenue as a percentage of GDP declined over the past few years, it is forecast to increase over the forecast period from 25.7% of GDP in 2010/11 to 27.8% in 2015/16.
|
Year ending 30 June % of GDP |
2011 Actual |
2012 Forecast |
2013 Forecast |
2014 Forecast |
2015 Forecast |
2016 Forecast |
Total 5 years |
|---|---|---|---|---|---|---|---|
| Core Crown tax revenue | 25.7 | 26.3 | 26.7 | 27.2 | 27.5 | 27.8 | |
| Annual movement | 0.6 | 0.4 | 0.5 | 0.3 | 0.3 | 2.1 | |
| Annual movement owing to: | |||||||
| Fiscal drag | 0.1 | 0.1 | 0.2 | 0.2 | 0.2 | 0.8 | |
| Composition of GDP | - | 0.2 | 0.2 | 0.1 | 0.1 | 0.6 | |
| Legislated tax system changes | 0.3 | 0.1 | - | 0.1 | 0.1 | 0.6 | |
| Other | 0.2 | - | 0.1 | (0.1) | (0.1) | 0.1 | |
| Total annual movement | 0.6 | 0.4 | 0.5 | 0.3 | 0.3 | 2.1 |
Source: The Treasury
“Legislated tax system changes” are mainly the increases to tobacco excise rates, the fuel excise rate and road user charges. The 0.3% of GDP in 2011/2012 represents the revenue-positive aspects of the 2010 Budget Update package beginning to take effect.
