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Budget 2017 Home Page Budget Economic and Fiscal Update 2017

Comparison to the Half Year Update

The Half Year Update was published on 8 December 2016. Since then, there have been a number of developments that have significantly impacted the fiscal outlook. Table 2.12 below summarises the changes in the key fiscal indicators since then.

Table 2.12 - Key fiscal indicators compared to the Half Year Update
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast

Core Crown tax revenue

         
Budget Update 74.6 77.5 81.0 85.9 89.9
Half Year Update 74.2 78.0 82.0 85.8 89.9
Change 0.4 (0.5) (1.0) 0.1 -

Core Crown expenses

         
Budget Update 77.5 80.5 83.5 86.2 89.2
Half Year Update 78.3 80.1 82.4 85.2 87.8
Change (0.8) 0.4 1.1 1.0 1.4

OBEGAL (excluding minority interests)

         
Budget Update 1.6 2.9 4.1 6.1 7.2
Half Year Update 0.5 3.3 5.4 6.8 8.5
Change 1.1 (0.4) (1.3) (0.7) (1.3)

Core Crown residual cash

         
Budget Update 0.1 (1.8) (1.6) 1.7 1.4
Half Year Update (2.2) (2.1) 1.4 3.0 2.6
Change 2.3 0.3 (3.0) (1.3) (1.2)

Net core Crown debt

         
Budget Update 62.3 64.1 65.7 64.2 62.8
Half Year Update 64.4 66.4 65.0 62.1 59.6
Change (2.1) (2.3) 0.7 2.1 3.2

Net worth attributable to the Crown

         
Budget Update 100.0 105.6 112.6 122.1 133.0
Half Year Update 93.0 99.1 107.4 117.3 129.3
Change 7.0 6.5 5.2 4.8 3.7

Source: The Treasury

The Family Incomes Package has reduced tax revenue forecasts...

The dominant feature of the change in tax revenue forecasts since the Half Year Update is the Family Incomes Package. The income tax threshold adjustment and IETC abolition components of the package have removed $6.3 billion from the tax revenue forecasts. This is most noticeable in the source deductions and other persons tax lines in Table 2.13.

Figure 2.24 - Movement in core Crown tax revenue since the Half Year Update
Figure 2.24 - Movement in core Crown tax revenue since the Half Year Update.
Source: The Treasury

…but there is some offset from a stronger economic outlook…

Offsetting the impact of the Family Incomes Package is the more-positive outlook for nominal GDP, which adds $3.2 billion to tax revenue across the forecast period. This $3.2 billion is made up of:

  • a $1.7 billion increase to the tax forecasts as a direct result of macroeconomic forecast changes, plus
  • $1.5 billion that arises as an indirect result of the tax clawback on the Family Incomes Package discussed on page 27.

The upward influence of the macroeconomic forecast changes is most noticeable in the corporate tax forecasts, which were increased by $2.7 billion in total. Forecasts of operating surplus, which is the component of GDP that most-closely matches taxable corporate profits, are generally higher than in the Half-Year Update throughout the forecast period.

As mentioned in the Economic Outlook chapter, interest rates are now forecast to be higher than in the Half Year Update. This will have an effect on interest income earned on term deposits and other similar investments, which has increased the RWT on interest forecasts by $0.9 billion across the forecast period.

The forecasts of GST are overall mostly similar to the Half Year Update. Although the forecast for domestic consumption has been raised slightly, this is offset by the pause in residential investment growth mentioned in the Economic Outlook chapter. Continued high levels of inbound tourism are having a positive effect on GST revenue.

Table 2.13 - Reconciliation of the change in core Crown tax revenue
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Total
Change

Movement in core Crown tax owing to:

           
Source deductions - (0.1) (1.2) (1.3) (1.6) (4.2)
Other persons tax - (0.1) (0.2) - 0.2 (0.1)
Corporate tax 0.6 - 0.4 0.7 1.0 2.7
RWT 0.1 0.1 0.2 0.3 0.2 0.9
GST (0.2) (0.3) - 0.3 0.3 0.1
Other taxes (0.1) (0.1) (0.2) 0.1 (0.1) (0.4)
Total movement in core Crown tax revenue 0.4 (0.5) (1.0) 0.1 - (1.0)
Plus: Half Year Update's tax base 74.2 78.0 82.0 85.8 89.9  
Core Crown tax revenue at Budget Update 74.6 77.5 81.0 85.9 89.9  
As a % of GDP 27.7% 27.5% 27.3% 27.5% 27.7%  

Core Crown tax movements consist of:

           
Family Incomes Package - (0.5) (1.5) (1.3) (1.5) (4.8)
Other policy initiatives - - - 0.1 0.1 0.2
Forecast changes 0.4 - 0.5 1.3 1.4 3.6

Source: The Treasury

...while the OBEGAL outlook is lower…

With tax revenue overall lower than forecast in the Half Year Update, increases to the Budget 2017 operating package and future operating budget allowances, OBEGAL is expected to be lower from 2017/18 than what was forecast in the Half Year Update (Table 2.14).

Table 2.14 - Changes in OBEGAL since the Half Year Update
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
OBEGAL - 2016 Half Year Update 0.5 3.3 5.4 6.8 8.5
Changes in forecasts:          
       Family Incomes Package (including social assistance) - (0.6) (2.1) (1.8) (2.0)
       Budget 2017 new operating spend - (0.1) (0.4) (0.2) (0.4)
       Increase to future operating allowances - - (0.2) (0.4) (0.7)
       Core Crown tax revenue forecast changes 0.4 - 0.5 1.3 1.4
       Tax receivable impairment expense 0.3 0.3 0.3 0.3 0.3
       Other changes 0.4 - 0.6 0.1 0.1
Total changes since the Half Year Update 1.1 (0.4) (1.3) (0.7) (1.3)
OBEGAL - 2017 Budget Update 1.6 2.9 4.1 6.1 7.2

Source: The Treasury

Budget 2017 new operating spending has reduced OBEGAL by $1.1 billion across the forecast when compared to the Half Year Update (for more detail, refer to Tables 2.13 and 2.14). Overall, operating expenditure increased from an average of $1.5 billion to $1.8 billion each year and future budget operating allowances have increased from $1.5 billion signalled in the Half Year Update to $1.7 in Budget 2018 rising by 2% each year thereafter.

Reductions in tax receivable impairment expenses of just over $300 million per year reflect improved tax collection. This reduced expenditure is consistent with the March 2017 actual results.

...while net core Crown debt is higher at the end of the forecast period compared to the Half Year Update

Net core Crown debt is expected to be lower than the Half Year Update in the first two years of the forecast before increasing to be $3.2 billion higher by 2020/21 (Table 2.11).

The Family Incomes Package (as outlined on pages 21 to 22) has had the largest single impact on net core Crown debt since the Half Year Update. However, this has been partially offset by the forecast increase in tax receipts owing to the stronger economic outlook (Table 2.15).

Increases in Budget 2017 new operating spend, along with an increase in the operating allowances for future budgets have increased net core Crown debt.

Overall, changes to the timing and amount of capital spending have reduced net core Crown debt since the Half Year Update, particularly in the current year. While capital spending in Budget 2017 is larger than previously forecast, other factors have resulted in reductions in other capital spending across the forecast period. Some capital spending is now forecast to occur over a longer period of time (eg, some payments in relation to the Housing Infrastructure Fund are now expected to be outside the forecast period), while other spending has reduced (eg, the cost of EQC's Crown guarantee as costs for Canterbury and Kaikōura have been refined).

The NZS Fund contribution is expected to be $0.9 billion less than previously forecast in the Half Year Update (decreasing net debt) reflecting updated underlying assumptions, including the new government policy to lift the age of eligibility for NZS to 67 years by 2040/41.

Table 2.15 - Changes in net core Crown debt since the Half Year Update
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Net debt - 2016 Half Year Update 64.4 66.4 65.0 62.1 59.6
Changes in forecasts (cumulative):          
       Family Incomes Package (including social assistance) - 0.6 2.7 4.5 6.5
       Budget 2017 new operating spend - 0.1 0.5 0.7 1.1
       Budget 2017 new capital spend (0.1) 0.3 0.7 0.9 0.9
       Increase to future operating allowances - - 0.2 0.6 1.3
       Increase to future capital allowances - (0.1) (0.2) (0.1) 0.2
       Tax receipt forecasts (0.1) (0.5) (0.8) (2.0) (3.3)
Capital reforecasting (1.3) (1.8) (2.1) (1.9) (1.8)
       NZS Fund contributions - - - - (0.9)
       Other changes (0.6) (0.9) (0.3) (0.6) (0.8)
Total changes since the Half Year Update (2.1) (2.3) 0.7 2.1 3.2
Net debt - 2017 Budget Update 62.3 64.1 65.7 64.2 62.8

Source: The Treasury

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