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Budget 2017 Home Page Budget Economic and Fiscal Update 2017

Treasury and Inland Revenue Tax Forecasts

In line with established practice, Inland Revenue 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 total, the two agencies' forecasts are similar to each other, with the differences between the total tax revenue forecasts in any given year all being under 1%. However, there are noteworthy differences within some of the tax types, including:

  • corporate tax, in which the Treasury's forecast is lower than Inland Revenue's in every year of the forecast period, by amounts between $0.1 and $0.2 billion, owing to different judgements made around the current degree of underlying strength in corporate tax
  • net other persons tax, in which the Treasury's tax receipts forecast is similar to, but a little lower than, Inland Revenue's forecast, but the Treasury has taken a view that the wedge between net other persons tax revenue and receipts will increase through the forecast period
  • goods and services tax (GST), where Treasury's forecast contains a more-prominent cycle than Inland Revenue's forecast, owing to the relatively greater weight put on residential investment in the Treasury's forecasting model, and
  • owing to different forecasting model structure, parameters and assumptions, the Treasury's forecast of withholding tax on resident interest (RWT) grows at a faster rate than Inland Revenue's forecast to be $0.4 billion higher by the end of the forecast period.

In total, the Treasury’s tax forecast is initially (2016/17) lower than Inland Revenue’s, but grows at a faster rate on average over the forecast period, to be $0.7 billion higher than Inland Revenue’s forecast by 2020/21, mainly as a result of differences in the interest RWT forecasts and the residential investment cycle in the Treasury’s GST forecasts.

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

Table 8 Treasury and Inland Revenue forecasts of tax revenue (accrual)

Table 9 Treasury and Inland Revenue forecasts of tax receipts (cash)

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