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Pre-election Economic and Fiscal Update 2014

Core Crown Tax Revenue

Core Crown tax revenue is weaker than at the Budget Update...

Figure 2.1 - Movement in core Crown tax revenue since the Budget Update
Figure 2.1 - Movement in core Crown tax revenue since the Budget Update   .
Source:  The Treasury

Overall, tax revenue is forecast to be $2.1 billion less than the Budget Update across the forecast period with tax revenue between $0.3 billion and $0.5 billion lower each year.

Most of the lower tax revenue is owing to changes in macroeconomic conditions that have been reflected in the economic forecasts. In particular, reductions in forecasts of nominal private consumption resulting in decreases in the goods and services tax (GST) forecasts across each year of the forecast, and a lower deposit rate track resulting in reduced forecasts of residents' withholding tax (RWT) (included in Other taxes in Figure 2.1). Partially offsetting these influences, a higher forecast for corporate profits is expected to deliver higher-than-previously anticipated corporate tax revenue. As the reductions in overall tax forecasts mirror macroeconomic conditions, the tax-to-GDP profile is very similar to the Budget Update. Refer Table 2.3 for a summary of the key drivers of the changes in tax forecasts from the Budget Update.

The 2013/14 forecast, which is based on preliminary, unaudited results for the 2013/14 year, is $0.4 billion lower than the Budget Update. This change comprises $0.2 billion for GST, $0.1 billion for corporate tax and $0.1 billion for other taxes (Figure 2.1). Refer to the box on page 28 for further discussion of the 2013/14 forecast tax revenue result.

Table 2.3 - Change in core Crown tax revenue forecasts since the Budget Update
Year ended 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Core Crown tax revenue - 2014 Budget Update 61.9 66.4 70.6 74.1 77.6
As a percentage of GDP 26.8% 27.6% 28.0% 28.2% 28.5%
Changes in forecasts by principal factor
Employees' compensation (0.1) (0.1)
Entrepeneurial income (0.1)
Corporate profits 0.1 0.1 0.1
Private consumption (0.2) (0.1) (0.1) (0.1) (0.2)
Residential investment (0.1)
Other macroeconomic factors (0.1) (0.1)
Interest rates (0.1) (0.1) (0.1) (0.1)
Other factors (0.3) (0.1) (0.1) (0.1) (0.1)
Total changes since the Budget Update (0.4) (0.3) (0.4) (0.5) (0.5)
Core Crown tax revenue - 2014 Pre-election Update 61.5 66.1 70.2 73.6 77.1
As a percentage of GDP 26.6% 27.5% 28.0% 28.1% 28.4%
Changes in forecasts by major tax type          
Source deductions (0.1) (0.1) (0.2)
Net other persons tax (0.1) (0.1) (0.1)
Corporate tax (0.1) 0.1 0.1 0.1 0.1
Resident withholding taxes (0.1) (0.1) (0.1) (0.1)
GST (0.2) (0.1) (0.1) (0.1) (0.2)
Customs and excise duties (0.1) (0.1)
Other taxes (0.1) (0.1) (0.2) (0.1) 0.1
Total changes since the Budget Update (0.4) (0.3) (0.4) (0.5) (0.5)

...but continues to grow by 5.6% per year on average over the forecast period

Figure 2.2 - Core Crown tax revenue
Figure 2.2 - Core Crown tax revenue   .
Source:  The Treasury

Core Crown tax revenue is forecast to rise in each year of the forecast period. While tax is weaker than previously forecast, growth of 5.6% per year across the forecast period is still expected and, by 2017/18, core Crown tax revenue is expected to reach $77.1 billion.

Figure 2.3 - Core Crown tax revenue growth
Figure 2.3 - Core Crown tax revenue growth   .
Source:  The Treasury

Forecast tax revenue increases relative to nominal GDP, reaching 28.4% by the end of the forecast period compared to 27.5% in 2012/13 (Figure 2.2) mainly owing to the progressive nature of the personal tax scale.

Most of the growth in nominal tax revenue forecasts can be attributed to growth in the nominal economy, with nominal GDP forecast to grow at 5.0% per year on average over the forecast period. Tax revenue growth increases in 2014/15 before slowing over the remainder of the forecast period as the growth in nominal GDP slows (Figure 2.3).

All tax types are expected to increase across the forecast period as shown in Table 2.4.

Table 2.4 - Movement in core Crown tax revenue over the forecast period by tax type
Year ended 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Total
Movement in core Crown tax owing to:    
Source deductions 1.4 1.4 1.4 1.5 1.6 7.3
Other persons tax 0.1 0.3 0.2 0.2 0.1 0.9
Corporate tax 0.3 0.8 0.4 0.4 0.3 2.2
Resident withholding tax (RWT) (0.1) 0.3 0.6 0.4 0.4 1.6
Goods and services tax (GST) 0.9 1.6 1.1 0.8 0.9 5.3
Other taxes 0.2 0.2 0.4 0.1 0.2 1.1
Total movement in core Crown tax 2.8 4.6 4.1 3.4 3.5 18.4
Plus: previous year's tax base 58.7 61.5 66.1 70.2 73.6 58.7
Core Crown tax revenue 61.5 66.1 70.2 73.6 77.1 77.1
As a % of GDP 26.6% 27.5% 28.0% 28.1% 28.4%

Note: These numbers may not add due to rounding.

Source: The Treasury

Growth in employees' compensation and the progressive nature of the personal tax scale (fiscal drag) see source deductions increase by $7.3 billion over the forecast period while growth in corporate profits sees corporate tax increasing by $2.2 billion over the forecast period. Private consumption is expected to grow, contributing to a forecast $5.3 billion increase in GST.

Forecast increases in deposit interest rates and growth in the interest-bearing deposit base are expected to result in growth in tax on interest earned on residents' savings (RWT) of about $1.6 billion across the forecast period.

The Risks and Scenarios chapter provides further discussion of the risks around tax revenue.

IRD has also prepared a set of tax forecasts based on the Treasury's macroeconomic forecasts (Table 2.5).[2]

Table 2.5 - The Treasury and IRD core Crown tax revenue forecasts
Year ended 30 June
$billions
2014
Forecast
2015
Forecast
2016
Forecast
2017
Forecast
2018
Forecast
Source deductions
Treasury  23.8  25.2  26.6  28.1  29.7
Inland Revenue  23.8  25.3  26.7  28.2  29.7
Difference -  (0.1)  (0.1)  (0.1) -
Net other persons tax
Treasury  3.6  3.9  4.1  4.3  4.4
Inland Revenue  3.6  3.8  4.0  4.2  4.3
Difference -  0.1  0.1  0.1  0.1
Corporate taxes
Treasury  10.2  11.0  11.4  11.8  12.1
Inland Revenue  10.2  10.9  11.3  11.6  11.8
Difference -  0.1  0.1  0.2  0.3
Goods and services tax
Treasury  16.1  17.7  18.8  19.5  20.4
Inland Revenue  16.1  17.8  18.8  19.7  20.4
Difference -  (0.1) -  (0.2) -
Other taxes
Treasury  7.8  8.3  9.3  9.9  10.5
Inland Revenue  7.8  8.5  9.6  10.2  11.0
Difference -  (0.2)  (0.3)  (0.3)  (0.5)
Total tax
Treasury  61.5  66.1  70.2  73.6  77.1
Inland Revenue  61.5  66.3  70.4  73.9  77.2
Difference -  (0.2)  (0.2)  (0.3)  (0.1)
Total tax (% of GDP)
 Treasury  26.6  27.5  28.0  28.1  28.4
 Inland Revenue  26.6  27.6  28.1  28.2  28.5
 Difference -  (0.1)  (0.1)  (0.1)  (0.1)

Source: The Treasury, IRD

Notes

  • [2]For more details of the Treasury and IRD's forecasts, see the Additional Information document on the Treasury website www.treasury.govt.nz
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