Comparison with Budget Update
OBERAC and operating balance
Over the forecast period the OBERAC is forecast to be higher than the Budget Update.
- Figure 2.14 – OBERAC comparison
- Source: The Treasury
The increase in the OBERAC compared with the Budget Update is largely due to:
- an increase in tax revenue due to forecasting changes of approximately $1 billion per annum. Most of the increase in the compensation of employees forecast has led to an increase in PAYE forecasts of $600 to 800 million each year. Tax revenue has also changed due to policy decisions outlined in table 2.14
- a reduction in benefit expense forecast of approximately $0.2 billion in 2006/07 and by $0.4 billion thereafter. Most of the reduction occurs in the unemployment benefit and is due to an improved economic and labour market outlook from the Budget Update and enhanced provision of services to job seekers, and
- an increase in investment income mainly due to the fact the Government is forecast to hold a higher level of financial assets as a result of the Reserve Bank increasing the settlement cash level. There is a corresponding increase in the forecast for finance costs. There is also an increase in investment income due to a change in the methodology used by the NZDMO to calculate interest income on its financial asset portfolio.
The above factors affect each of the forecast years. In addition, in the current year expenses are also influenced by expenses transfers from the 2005/06 financial year and a one-off write-off of student loan debt.
Post 2008 revenue is forecast to reduce by $1 billion each year, reflecting the increase in the 2008 Budget allocation.
| ($ million) | 2007 Forecast | 2008 Forecast | 2009 Forecast | 2010 Forecast |
|---|---|---|---|---|
| OBERAC 2006 Budget Update | 5,768 | 4,343 | 3,561 | 5,412 |
Changes (revenue) | ||||
| Tax revenue (forecasting) | 857 | 1,129 | 1,276 | 833 |
| Tax revenue (policy) | 182 | 106 | 683 | (30) |
| Other sovereign revenue | 4 | 11 | 4 | 11 |
| New revenue allocation | - | - | (1,000) | (1,000) |
| Investment income | 1,536 | 883 | 873 | 773 |
| Other revenue | 15 | 7 | 12 | 1 |
| Changes to SOE/CE results | (296) | 11 | (27) | (148) |
Total revenue changes | 2,298 | 2,147 | 1,821 | 440 |
Changes (core Crown expenses) | ||||
| Welfare Benefit forecast changes | 158 | 356 | 354 | 366 |
| Student loans | (434) | (109) | (113) | (102) |
| Future new operating spending | 104 | 176 | 154 | 305 |
| Other core Crown functional expenses | (554) | (554) | (290) | (307) |
| Finance costs | (684) | (288) | (290) | (288) |
Total core Crown expenses changes | (1,410) | (419) | (185) | (26) |
Total changes | 888 | 1,728 | 1,636 | 414 |
| OBERAC 2006 Half Year Update | 6,656 | 6,071 | 5,197 | 5,826 |
Source: The Treasury
Effect of Tax Policy Changes to Tax Forecasts
| ($ million) | 2007 Forecast | 2008 Forecast | 2009 Forecast | 2010 Forecast |
|---|---|---|---|---|
| Material policy changes | ||||
| KiwiSaver SSCWT exemption | - | (35) | (71) | (104) |
| Fair discount rate | - | (30) | (30) | (30) |
| Portfolio investment entities | - | 36 | (1) | (1) |
| Provisional tax accruals | 182 | 135 | 785 | 105 |
| Total | 182 | 106 | 683 | (30) |
Source: The Treasury
KiwiSaver SSCWT exemption
Employer contributions to KiwiSaver will be exempt from specified superannuation contribution withholding tax
Fair discount rate
A '”fair discount rate” method is to be used for the taxation of offshore portfolio share investments.
Portfolio investment entities
The application date of new rules for portfolio investment entities has been deferred from 1 April 2007 to 1 October 2007.
Provisional tax accruals
In June 2006, Inland Revenue changed the way it calculates provisional tax revenue. This change has the largest effect in 2009 when $600 million of provisional tax revenue that was previously lost owing to a shift in payment dates is effectively reinstated by the new calculation method. Note that this is a change in accounting treatment rather than a tax policy change.
Residual cash
Over the forecast period residual cash is forecast to be around $3.6 billion higher than the Budget Update. The main drivers of the forecast increase are broadly similar to what has increased the OBERAC.
Debt indicators
Compared to the Budget Update, GSID is forecast to be higher by the end of the forecast period. This is largely due to the Reserve Bank increasing its settlement cash level by an additional $5.5 billion. This is partially offset by lower forecast issuance of Treasury Bills by NZDMO.
Net core Crown debt is lower by the end of the forecast period compared to the Budget Update. The main reason for this is because of the increase in the cash position.
