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Pre-election Economic & Fiscal Update 2011

Treasury and Inland Revenue Tax Forecasts

In line with established practice, Inland Revenue has also prepared a set of tax forecasts, which, like the Treasury's tax forecasts, is based on the Treasury's macroeconomic forecasts. The two sets of forecasts differ from each other because of the different modelling approaches used by the two agencies and the various assumptions and judgements made by the forecasting teams in producing their forecasts.

The Treasury's total tax forecasts are higher than Inland Revenue's in every June year from 2012 through to 2016 by, on average, $0.7 billion pa, a difference of approximately 1% of total tax revenue. The difference is spread across all of the major tax types, although Inland Revenue forecasts overall higher net other persons tax.

Table 9 - Summary of Treasury and Inland Revenue forecasts of total Crown tax revenue
Year ended 30 June

Source deductions

Treasury 21.3 22.7 24.3 26.1 27.8
Inland Revenue 21.0 22.5 24.2 25.9 27.7
Difference 0.3 0.2 0.1 0.2 0.1

Corporate taxes

Treasury 8.4 8.8 9.5 10.0 10.3
Inland Revenue 8.2 8.5 9.1 9.5 9.6
Difference 0.2 0.3 0.4 0.5 0.7

Goods and services tax

Treasury 15.1 16.2 17.4 18.4 19.3
Inland Revenue 15.1 16.0 17.2 18.2 19.1
Difference - 0.2 0.2 0.2 0.2

Other taxes

Treasury 10.2 10.9 11.7 12.4 13.2
Inland Revenue 10.1 10.8 11.7 12.6 13.5
Difference 0.1 0.1 - (0.2) (0.3)

Total tax

Treasury 55.0 58.6 62.9 66.9 70.6
Inland Revenue 54.4 57.8 62.2 66.2 69.9
Difference 0.6 0.8 0.7 0.7 0.7

Total tax (% of GDP)

Treasury 26.0 26.4 26.8 27.2 27.5
Inland Revenue 25.7 26.1 26.5 26.9 27.2
Difference 0.3 0.3 0.3 0.3 0.3

The Treasury's and Inland Revenue's source deductions (mainly PAYE) are similar to each other, with the average difference across all five years being less than 1%.

In corporate tax, the Treasury's view of current corporate profitability is higher than Inland Revenue's view. This in turn causes the Treasury's corporate tax forecast to be higher than Inland Revenue's in 2012 and the gap persists through the forecast period as the Treasury's 2012 profit assumption raises the base level of profits through all forecast years. In addition, the Treasury's forecast includes a more cyclical recovery than Inland Revenue's in that it has tax loss usage abating from 2014 onwards. This increases the gap between the two forecasts as Inland Revenue has made no explicit assumption regarding the level of tax loss usage in the forecast period.

The difference in the GST forecasts is caused by the different treatment of residential investment in the respective forecasting models. The Treasury's GST forecasting model explicitly includes forecasts of residential investment as an input whereas Inland Revenue's forecasts of GST related to residential investment are judgement based. Residential investment grows strongly in the Treasury's macroeconomic forecast over the year ending June 2013 and the difference in approach is reflected in the Treasury's higher GST forecast from 2013 onwards.

Forecasts of other taxes, in total, are broadly similar to each other, with some offsetting differences across various minor taxes. For instance, Inland Revenue's forecast for other taxes is higher than the Treasury's in 2015 and 2016 owing to different judgements around the cyclical profile of refunds to individuals. Inland Revenue expects that refunds to individuals and business (other persons) will abate once the recent spate of ‘catch up' refunds for salary and wage earners runs its course and will settle out at a lower level. The Treasury considers that refunds to businesses and individuals (other persons) will remain at a higher level.

  • Table 10 ­- Treasury and Inland Revenue forecasts of tax revenue (accrual).
  • Table 11 - Treasury and Inland Revenue forecasts of tax receipts (cash).
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