Statement of Specific Fiscal Risks
Pending policy decisions affecting revenue
ACC - Levies (Changed, Unquantified)
Changes in tax settings, economic factors and ACC's financial performance affect ACC's expenses and levy income. If ACC's performance as a result of any of these factors is different from what is forecast, ACC may increase or decrease levies. An increase or decrease in levies has a flow-on impact on total Crown revenue with a corresponding impact on the operating balance before gains and losses.
Finance - Mixed Ownership Model (Unchanged, Unquantified)
The Government is considering applying the type of Mixed Ownership Model that is currently used for Air New Zealand to Genesis Energy, Meridian Energy, Mighty River Power and Solid Energy, and further reducing the Crown's shareholding in Air New Zealand. The final amount and timing of any cash proceeds, the flow-on effects for future dividend streams and any implementation costs are uncertain.
Revenue - Apportionment Rules for Mixed-Use Assets (Changed, Unquantified)
An issues paper has been released on the apportionment rules that apply to tax deductions for assets which are used to earn income and which are also partly used for private purposes. Any changes to those rules will have a positive impact on tax revenue.
Revenue - Income-Sharing Tax Credits (Unchanged, Quantified)
The Government has introduced legislation to establish an income-sharing tax credit. If passed as introduced, the legislation will allow couples with children under the age of 18 to pool their earnings for income tax purposes if they meet certain criteria. If implemented, the changes will reduce tax revenues by $500 million per annum once the scheme is fully operational. The Finance and Expenditure Committee has reported back recommending that the significant fiscal cost of the package be addressed before the Bill proceeds further.
Revenue - Potential Tax Policy Changes (Changed, Unquantified)
The tax policy work programme announced by the Government includes a number of items which are under consideration, including:
- the tax treatment of charitable giving
- the imputation system
- amortisation of capital-raising costs
- the international tax review
- the GST treatment of cross-border business activities
- the tax treatment of hybrid instruments
- the dividend review, and
- the review of specified minerals rules.
The Government aggregates the revenue impacts of most tax policy changes, and measures on the work programme are expected to be revenue-neutral or positive in aggregate.
Revenue - Salary Trade-Offs (Changed, Unquantified)
The Government is reviewing the tax treatment of employee benefits traded off for salary, including the treatment of car parks. Any changes are expected to result in an increase in tax revenues.
Services funded by Third Party Revenue (Changed, Unquantified)
A wide range of government activities are funded through third party fees and charges. Demand for these services can vary, which has a direct effect on revenue. There is a risk that changes will be required to the way services are delivered, which could result in costs to the Crown.
Pending policy decisions affecting expenses
Climate Change - Review of the Emissions Trading Scheme (Changed, Quantified)
A statutory review of the ETS was published on 15 September 2011, which included recommendations to change the ETS settings with an estimated fiscal cost of up to $585 million between 2013 and 2020, calculated at a $25 carbon price. These estimates are subject to change, based on emissions forecasts and the carbon price. There are other recommendations that have not yet been quantified fully by officials, as well as potential savings that could be used to achieve a fiscally neutral outcome.
Education - Early Childhood Education Funding (Changed, Unquantified)
Rising demand for Early Childhood Education (ECE) services and increased costs associated with inflation have the potential to raise the costs of Government subsidies to ECE services.
Education - Upward Adjustment for School Operating Funding (Unchanged, Unquantified)
The Government has increased school operating grants in Budget 2011 to help meet increased costs associated with inflation. A risk remains that similar cost pressures will need to be addressed in future years.
Government Response to Wai 262 (New, Unquantified)
The Waitangi Tribunal released its report on the Wai 262 claim on 2 July 2011. The report focuses on the protection of Maori culture and identity, with a particular focus on matauranga Maori and associated taonga. The Tribunal’s recommendations are directed towards a number of Government agencies individually, as groups and across sectors. The Government is currently considering the Tribunal’s report and recommendations to fully understand their implications (including any fiscal implications).
Housing - Reform of Social Housing (Changed, Unquantified)
The Government has decided to change the policy settings for social housing. This includes increasing third party providers of social housing, increasing the effectiveness of financial assistance and focusing Housing New Zealand Corporation on providing social housing to those with the greatest housing need. Plans for implementation remain under development, but potentially represent a significant fiscal risk to the Crown. However, there may be offsetting financial benefits to the Crown if significant gains in efficiency are achieved.
Revenue - KiwiSaver Auto-Enrolment (New, Quantified)
In Budget 2011 the Government announced its intention to consult on the design of a one-off KiwiSaver auto-enrolment exercise to increase the number of KiwiSaver members. The Government has recently announced that it intends to proceed with auto-enrolment in 2014/15 subject to returning to surplus as planned.Depending on the timing, design features and take-up rate, an auto-enrolment exercise is likely to entail a one-off cost for kick-start payments to new members and ongoing additional costs for the Member Tax Credit. These costs could be in the order of $350 to $550 million over the first four years after the auto-enrolment took place.
Revenue - Transformation and Technology Renewal (Changed, Unquantified)
Inland Revenue is exploring options that will fundamentally change the way it manages its processes and data, in order to deliver smarter, modern services for less. Technology renewal is a key enabler to support Inland Revenue's future business model and focuses on sustaining current systems (ie, minimising known risks within existing technology), through to significant business process and technology changes. Any changes could impact tax revenue collections and/or have material administrative costs to implement.
Reviews of Public Services (Unchanged, Unquantified)
The Government has initiated a series of reviews to improve the effectiveness and efficiency of public services. Reviews may recommend, or result in, changes to service delivery and/or free up resources for reprioritisation within Votes or be used to meet pressures in other areas.
Social Development - Welfare Working Group Recommendations (Changed,Unquantified)
The Government is considering its response to the recommendations of the Welfare Working Group. Many of the recommendations would result in large upfront costs if adopted. The Government will make policy and funding decisions over the next year.
State Sector Employment Agreements (Unchanged, Unquantified)
A number of large collective agreements are due to be renegotiated in the short-to-medium term. As well as direct fiscal implications from any changes to remuneration, the renegotiation of these agreements can have flow-on effects to remuneration in other sectors. The Government has signalled an expectation of restraint given the current economic environment.
