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Half Year Economic and Fiscal Update 2013

General Fiscal Risks

The remainder of this chapter focuses on the links between the risks to the performance of the economy and the Crown's fiscal position. For more on fiscal risks, see the Specific Fiscal Risks chapter on page 61.

Fiscal Sensitivities

Table 3.2 provides some rules of thumb on the sensitivities of the fiscal position to small changes in specific variables. For example, if, for some reason, nominal GDP growth is one percentage point faster than we have forecast each year up to June 2018, tax revenue would be expected to be around $4.0 billion (1.5% of GDP) higher than forecast in the June 2018 year as a result. The sensitivities are broadly symmetric and if nominal GDP growth is one percentage point slower each year than we expect, tax revenue would be around $3.9 billion lower than forecast in the June 2018 year. However, these figures can be influenced by the composition of growth as different types of activity have different effective tax rates.

A different interest rate path than that forecast would also impact on the fiscal position. A one percentage point lower interest rate would result in interest income on funds managed by the Treasury's New Zealand Debt Management Office (NZDMO) being $178 million lower in the June 2018 year. This would be more than offset by interest expenses being $384 million lower in the June 2018 year.

Table 3.2 - Fiscal sensitivity analysis
Year ending 30 June
($millions unless stated)
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
1% higher nominal GDP growth per annum on          
Tax revenue 620 1,335 2,150 3,035 4,015
   (% of GDP) 0.3 0.6 0.9 1.2 1.5
Tax revenue impact of a 1% increase in growth of
Wages and salaries 270  570 910 1,285 1,725
   (% of GDP) 0.1 0.2 0.4 0.5 0.6
Taxable business profits 125  290 475 670 875
   (% of GDP) 0.1 0.1 0.2 0.3 0.3
Impact of 1% point lower interest rates on
Interest income1          (70)          (89)          (85)        (161)        (178)
   (% of GDP)         (0.0)         (0.0)         (0.0)         (0.1)         (0.1)
Interest expenses1            (4)         (134)        (244)        (341)        (384)
   (% of GDP)  (0.0)   (0.1)   (0.1)  (0.1)   (0.1)
Overall operating balance          (66) 45 159 180 206
   (% of GDP)         (0.0) 0.0 0.1 0.1 0.1

Note: 1 Funds managed by the Treasury's NZDMO only.

Source: The Treasury

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