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Budget 2015 Home Page Budget Economic and Fiscal Update 2015

Comparison to the Half Year Update

The Half Year Update was published on 16 December 2014. There have been a number of developments since then that have significantly impacted the fiscal outlook.

Table 2.12 - Key fiscal indicators compared to the Half Year Update
Year ending 30 June
$billions
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast

Core Crown tax revenue

   
Budget Update 66.1 68.9 72.5 76.8 80.5
Half Year Update 65.6 69.2 73.1 76.8 80.0
Change 0.5 (0.3) (0.6) - 0.5

Core Crown expenses

   
Budget Update 73.1 74.9 77.1 80.8 83.4
Half Year Update 73.0 75.1 76.9 80.7 83.2
Change 0.1 (0.2) 0.2 0.1 0.2

OBEGAL

   
Budget Update (0.7) 0.2 1.5 2.0 3.6
Half Year Update (0.6) 0.6 2.6 3.1 4.1
Change (0.1) (0.4) (1.1) (1.1) (0.5)

Residual cash

   
Budget Update (2.7) (4.2) (1.6) (0.2) 1.7
Half Year Update (4.0) (3.5) (0.1) 0.6 1.8
Change 1.3 (0.7) (1.5) (0.8) (0.1)

Net debt

   
Budget Update 61.7 65.6 67.1 67.2 65.5
Half Year Update 63.5 67.0 67.0 66.4 64.5
Change (1.8) (1.4) 0.1 0.8 1.0

Source: The Treasury

Economic factors have adversely impacted OBEGAL...

The reduced outlook for economy-wide prices and domestic interest rates has adversely impacted OBEGAL, with tax revenue now expected to be lower across most of the forecast period.

Figure 2.18 - Movement in core Crown tax revenue since the Half Year Update
Figure 2.18 - Movement in core Crown tax revenue since the <em>Half Year Update</em>.
Source: The Treasury

Tax revenue in the year to 30 June 2015 has been revised up on the back of strong year-to-date results and a higher nominal GDP outlook overall for the 2014/15 year when compared with the Half Year Update. From then until 2017/18, tax revenue forecasts have been revised down largely owing to reductions in the forecast for nominal GDP growth and interest rates, which reflect the weaker inflation outlook. The tax revenue forecast for 2018/19 is higher than in the Half Year Update, mainly owing to increases to the forecasts of nominal private consumption and residential investment.

Table 2.13 - Reconciliation of the change in core Crown tax revenue
Year ending 30 June
$billions
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast

Movement in core Crown tax owing to:

         
Source deductions 0.1 - - (0.1) (0.1)
Other persons tax 0.3 - 0.1 0.2 0.3
Corporate tax 0.1 (0.4) (0.4) (0.2) (0.1)
RWT - - (0.2) (0.3) (0.2)
GST (0.2) - (0.1) 0.3 0.6
Other taxes 0.2 0.1 - 0.1 -
Total movement in core Crown tax revenue 0.5 (0.3) (0.6) - 0.5
Plus: Half Year Update's tax base 65.6 69.2 73.1 76.8 80.0
Core Crown tax revenue at Budget Update 66.1 68.9 72.5 76.8 80.5
As a % of GDP 26.3% 27.6% 27.6% 27.6% 27.9%

Core Crown tax movements consist of:

         
Tax policy changes - 0.1 0.2 0.3 0.3
Forecast changes 0.5 (0.4) (0.8) (0.3) 0.2

Source: The Treasury

The changes in tax forecasts owing to macroeconomic changes are not a fixed proportion of the nominal GDP forecast changes. This is owing to the components within the GDP forecasts changing by varying amounts, thereby affecting the forecasts of the various tax types differently. Specifically:

  • Recent strength in employment and wages has seen source deductions above forecast for the current fiscal year to date. This is expected to persist through to the end of 2014/15, and the momentum in employment is expected to flow through to 2015/16, resulting in an increase in the source deductions forecast in that year. Thereafter, the lower wage growth track dominates, reducing the source deductions forecast below the Half Year Update level.
  • A generally stronger forecast for entrepreneurial income than in the Half Year Update has caused an increase in the other persons' tax forecast, especially in 2017/18 and 2018/19. This is also responsible for some of the reduction in the corporate tax forecast, with unincorporated businesses now forecast to earn a higher proportion of total profits than in the Half Year Update.
  • The GST forecast is initially lower than in the Half Year Update owing to weaker forecasts of nominal consumption and residential investment, and some earthquake-related refunds occurring earlier in the forecast period than previously assumed. However, by the end of the forecast period, the GST forecast is about 2% higher than the Half Year Update as a result of higher forecasts of private consumption and residential investment in 2017/18 and 2018/19.
  • Finally, with interest rates lower than in the Half Year Update, the forecast for interest RWT has been reduced in most years of the forecast period.

Overall, OBEGAL is expected to be lower in each year of the forecast compared to the Half Year Update (Table 2.14).

Table 2.14 - Changes in OBEGAL since the Half Year Update
Year ending 30 June
$billions
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast
OBEGAL - 2014 Half Year Update (0.6) 0.6 2.6 3.1 4.1
Changes in forecasts:          

Economic factors

         
       Tax revenue (forecast changes) 0.5 (0.4) (0.7) (0.3) 0.2
       Benefit expenses (forecast changes) 0.1 (0.1) - 0.1 -
       Petroleum royalties (0.1) (0.1) (0.1) - -

Other factors

         
       Student loan impairment (0.2) - - - -
       Tax debt impairment 0.3 - - - -
       Net finance costs (0.2) 0.2 0.1 - -
       ACC forecast changes - (0.1) (0.5) (0.9) (0.6)
       Southern Response (0.3) - - - -
       Other changes - 0.1 0.1 - (0.1)
Total changes since the Budget Update (0.1) (0.4) (1.1) (1.1) (0.5)
OBEGAL - 2015 Budget Update (0.7) 0.2 1.5 2.0 3.6

Source:  The Treasury

Petroleum royalties have reduced as global oil prices have fallen considerably since the Half Year Update reflecting ongoing increases in supply even as demand has eased.

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