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Budget 2012 Home Page Budget Economic and Fiscal Update 2012

Treasury and Inland Revenue Tax Forecasts

In line with established practice, the Inland Revenue Department (IRD) has also prepared a set of tax forecasts, which, like the Treasury's tax forecasts, were 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 recent years, there have been large differences between the Treasury and the IRD tax forecasts. For instance, at the Pre-election Update, the Treasury's tax forecasts were, on average, $700 million (approx. 1% of unconsolidated tax) p.a. higher than the IRD 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 approximately $500 million (0.2% of GDP). The gap between the forecasts has closed because:

  • the Treasury has revised down its view of current corporate profitability and is now forecasting a milder tax loss cycle than in previous forecast updates
  • the GST forecasts have converged towards each other, as the IRD and the Treasury now give similar weight to residential investment in the GST forecasts, something that is quite significant, given the size of the likely rebuild in Canterbury as the region recovers from the devastation of the earthquakes, and
  • the Treasury has revised down its source deductions forecasts to be more in line with Inland Revenue's forecasts, as labour market data has softened over the past two quarters.

The following two tables detail the respective forecasts by the Treasury and the IRD for tax revenue and receipts across each of the various sources:

Table 9 Treasury and IRD forecasts of tax revenue (accrual)

Table 10 Treasury and IRD forecasts of tax receipts (cash)

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