Revenue and Expenses
This section discusses the trends in the three main OBEGAL components: core Crown revenue, core Crown expenses and SOEs’/CEs’ OBEGAL. The trend in total Crown is primarily driven by the core Crown segment activity so is the focus of this section.
| Year ended 30 June | ||||||
|---|---|---|---|---|---|---|
| % of GDP | 2007 Actual | 2008 Forecast | 2009 Forecast | 2010 Forecast | 2011 Forecast | 2012 Forecast |
| Total revenue | ||||||
| Half Year Update | 44.6 | 44.7 | 43.5 | 43.4 | 43.7 | 43.6 |
| Budget Update | 44.4 | 44.4 | 44.5 | 44.3 | ||
| Total expenses | ||||||
| Half Year Update | 41.4 | 41.0 | 41.2 | 41.3 | 41.8 | 41.8 |
| Budget Update | 41.5 | 42.2 | 42.6 | 42.5 | ||
| Core Crown revenue | ||||||
| Half Year Update | 34.9 | 35.0 | 34.0 | 33.8 | 34.2 | 34.3 |
| Budget Update | 34.3 | 34.1 | 34.1 | 34.1 | ||
| Core Crown expenses | ||||||
| Half Year Update | 32.4 | 32.1 | 32.4 | 32.4 | 32.8 | 33.0 |
| Budget Update | 32.4 | 32.8 | 33.0 | 33.1 | ||
| SOE revenue | ||||||
| Half Year Update | 7.1 | 7.1 | 7.1 | 7.2 | 7.1 | 7.1 |
| Budget Update | 7.5 | 7.6 | 7.5 | 7.2 | ||
| SOE expenses | ||||||
| Half Year Update | 6.6 | 6.7 | 6.6 | 6.7 | 6.6 | 6.5 |
| Budget Update | 6.9 | 6.9 | 6.9 | 6.7 | ||
| Crown entities' revenue | ||||||
| Half Year Update | 15.7 | 15.4 | 14.7 | 14.2 | 13.8 | 13.3 |
| Budget Update | 15.9 | 15.6 | 15.2 | 14.6 | ||
| Crown entities' expenses | ||||||
| Half Year Update | 15.4 | 15.1 | 14.5 | 14.1 | 13.7 | 13.2 |
| Budget Update | 15.5 | 15.3 | 14.9 | 14.4 | ||
Source: The Treasury
Total revenue to GDP is forecast to fall over the forecast period from 44.7% in 2007/08 to 43.6% by 2011/12. Total expenses to GDP are forecast to increase from 41% to 41.8% over the same period.
The trend in total revenue and expenses over the forecast horizon is largely driven by activity in the core Crown segment of reported Government activity. The following section discusses the core Crown activity in more detail.
Core Crown – Revenue
| Year ended 30 June | ||||||
|---|---|---|---|---|---|---|
| 2007 Actual | 2008 Forecast | 2009 Forecast | 2010 Forecast | 2011 Forecast | 2012 Forecast | |
| $ billion | ||||||
| Tax revenue and revenue reduction contingency | 53.4 | 57.2 | 57.7 | 59.6 | 62.5 | 65.5 |
| Investment revenue | 2.6 | 3.0 | 3.5 | 3.5 | 3.7 | 4.0 |
| Other core Crown revenue | 2.2 | 2.2 | 2.3 | 2.7 | 3.3 | 3.2 |
| Total core Crown revenue | 58.2 | 62.4 | 63.5 | 65.8 | 69.5 | 72.7 |
| % of GDP | ||||||
| Tax revenue and revenue reduction contingency | 32.0 | 32.1 | 30.9 | 30.6 | 30.8 | 30.8 |
| Investment revenue | 1.6 | 1.7 | 1.9 | 1.8 | 1.8 | 1.9 |
| Other core Crown revenue | 1.3 | 1.2 | 1.2 | 1.4 | 1.6 | 1.5 |
| Total core Crown revenue | 34.9 | 35.0 | 34.0 | 33.8 | 34.2 | 34.3 |
Source: The Treasury
Tax Revenue and Revenue Reduction Contingency
There are a number of factors that are influencing the trend in tax revenue over the forecast period. In summary the main drivers are:
- growth in the economy
- tax initiatives
- the revenue reduction contingency, and
- accounting disclosure changes.
Economic growth
Tax revenue is expected to grow by around 7% to the end of this year, which is broadly consistent with forecast growth in nominal GDP for the same period. In nominal terms, tax revenue is forecast to grow by about $4 billion. The three largest components of this growth are:
- source deductions ($1.5 billion), coming from growth in underlying salaries and wages of about 6%
- corporate taxes ($0.8 billion), owing to forecast growth in profits, and
- other persons tax ($0.6 billion), with much of this a result of the 50% increase in the 2008 dairy payout.
From 2009 onwards, the composition of forecast growth changes slightly. In particular tax types:
- Source deductions are still the main driver of tax growth. With aggregate salaries and wages forecast to grow at around 5% per annum, source deductions continue to grow by about $1.5 billion each year, with fiscal drag contributing $250 million to $300 million of this.
- Corporate tax continues to grow, but only by about $300 million each year, excluding the effects of the Business Tax Reform announced in the Budget Update.
- Other persons tax growth also slows, adding about $200 million each year.
- GST makes a more prominent contribution in these later years, adding $300 million to $600 million each year.
Tax revenue forecasts have also incorporated some second round effects from the revenue reduction contingency. They assume that such a revenue reduction would increase disposable income and also spur some additional employment and wage growth. This would generate some extra PAYE and GST, as well as providing a small boost to some of the other income taxes. This additional revenue from second round effects is estimated to be as much as $500 million by 2011/12.
Tax revenue initiatives
The Business Tax Reform has a significant effect in 2008/09 and beyond, reducing tax revenue by nearly $1 billion each year. Without the business tax package, core Crown tax revenue would have a much flatter profile, hovering around 32% of GDP.
Revenue reduction contingency
The fiscal forecasts include a revenue reduction contingency of $1.5 billion effective from 1 April 2009 and rising to $1.7 billion by the end of the forecast period. As signalled in the 2008 Budget Policy Statement (BPS), the contingency reflects possible reduction to personal income tax.
Accounting disclosure changes
There has been a change in the disclosure of bad debt write-offs of tax receivables. Tax write-offs are now shown as an expense rather than netted off against revenue. The change in the write-off treatment has resulted in a $450 million per annum increase in revenue and a corresponding increase in expenses. The main tax types affected are other persons, corporate tax and GST.
