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Half Year Economic and Fiscal Update 2016

Comparison to the Budget Update

The Budget Update was published on 26 May 2016. Since then, there have been a number of developments that have significantly impacted the fiscal outlook. Table 2.8 below summarises the changes in the key fiscal indicators since then.

Table 2.8 -Key fiscal indicators compared to the Budget Update
Year ending 30 June
$billions
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
Core Crown tax revenue    
Half Year Update - 74.2 78.0 82.0 85.8
Budget Update 69.7 72.0 75.7 80.3 84.4
Actual 70.4 - - - -
Change 0.7 2.2 2.3 1.7 1.4
Core Crown expenses    
Half Year Update - 78.3 80.1 82.4 85.2
Budget Update 74.4 77.4 79.7 82.0 84.8
Actual 73.9 - - - -
Change 0.5 (0.9) (0.4) (0.4) (0.4)
OBEGAL    
Half Year Update - 0.5 3.3 5.4 6.8
Budget Update 0.7 0.7 2.5 5.0 6.7
Actual 1.8 - - - -
Change 1.1 (0.2) 0.8 0.4 0.1
Core Crown residual cash    
Half Year Update - (2.2) (2.1) 1.4 3.0
Budget Update (2.1) (4.2) (2.1) 2.0 3.9
Actual (1.3) - - - -
Change 0.8 2.0 0.0 (0.6) (0.9)
Net core Crown debt    
Half Year Update - 64.4 66.4 65.0 62.1
Budget Update 62.3 66.3 68.3 66.3 62.3
Actual 61.9 - - - -
Change 0.4 1.9 1.9 1.3 0.2
Net worth attributable to the Crown    
Half Year Update - 93.0 99.1 107.4 117.3
Budget Update 83.5 86.6 91.6 99.3 108.9
Actual 89.4 - - - -
Change 5.9 6.4 7.5 8.1 8.4

Source: The Treasury

 A stronger economic outlook has improved the tax take...

As outlined in the Economic Outlook chapter, economic growth over the first half of 2016 has exceeded expectations, and this has likely continued into the latter half of 2016. In addition, nominal GDP growth up to the end of the 2017/18 is now expected to be much stronger than was forecast in the Budget Update.

Figure 2.21 - Movement in core Crown tax revenue since the Budget Update
Figure 2.21 - Movement in core Crown tax revenue since the Budget Update   .
Source: The Treasury

As a result of both of these factors, nominal GDP is forecast to be a cumulative (2016/17 to 2019/20 inclusive) $23.7 billion higher than in the Budget Update. This has contributed to an upward revision to the core Crown tax revenue forecasts of $7.6 billion across the forecast period. Forecasts for most of the major tax types have been increased, with the exception of interest RWT, which has followed the interest rate forecasts downwards. Table 2.9 below summarises the movements by tax type since the Budget Update.

Table 2.9 - Reconciliation of the change in core Crown tax revenue

Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
Total Change
Movement in core Crown tax owing to:          
Source deductions 0.6 0.8 0.8 0.8 3.0
Other persons tax 0.5 0.4 0.4 0.3 1.6
Corporate tax 0.5 0.5 0.3 0.2 1.5
RWT (0.2) (0.3) (0.6) (0.9) (2.0)
GST 0.6 0.7 0.7 0.8 2.8
Other taxes 0.2 0.2 0.1 0.2 0.7
Total movement in core Crown tax revenue 2.2 2.3 1.7 1.4 7.6
Plus: Budget Update's tax base 72.0 75.7 80.3 84.4  
Core Crown tax revenue at Half Year Update 74.2 78.0 82.0 85.8  
As a % of GDP 28.0% 28.0% 27.9% 27.9%  
Core Crown tax movements consist of:          
Forecast changes 2.2 2.3 1.7 1.4 7.6

Source: The Treasury

  • A higher forecast for compensation of employees (aggregate wages and salaries) has contributed to the source deductions forecasts being increased by $3.0 billion across the forecast period.
  • Increases to the outlook for private consumption and residential investment help to increase the total GST forecasts by $2.8 billion.
  • An increased forecast for entrepreneurial income, partly owing to the improved outlook for dairy farmers, has contributed to a $1.6 billion increase in the other persons tax forecast.
  • Corporate tax forecasts have been revised upwards by a total of $1.5 billion owing to an increased forecast for corporate profits.
  • The forecasts for interest RWT have been lowered by a collective $2.0 billion through a combination of lower interest rates and a recalibration of the model used to estimate RWT.
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