The Treasury

Global Navigation

Personal tools


Pre-election Economic and Fiscal Update 2017

Core Crown Tax Revenue

Tax revenue grows over the forecast period...

Core Crown tax revenue (Figure 2.1) is forecast to rise in each year of the forecast period in nominal terms while falling slightly as a percentage of nominal GDP. By 2020/21, core Crown tax revenue is expected to reach $89.8 billion, $19.4 billion higher than in 2015/16.

Figure 2.1 - Core Crown tax revenue
Figure 2.1 - Core Crown tax revenue.
Source: The Treasury

…with a relatively strong 2016/17 outturn expected...

Based on preliminary data for June 2017, core Crown tax revenue grew 7.4% ($5.2 billion) in the 2016/17 financial year (Table 2.3), to 28.1% of nominal GDP.

Table 2.3 - Growth in 2016/17 core Crown tax revenue compared with 2015/16
Year ending 30 June

Source deductions 27.0 28.7 1.7 6.3
Other persons tax 4.5 5.1 0.6 13.3
Corporate tax 11.7 13.2 1.5 12.8
RWT 2.3 2.2 (0.1) (4.3)
GST 18.2 19.7 1.5 8.2
Other taxes 6.7 6.7 - -
Core Crown tax revenue 70.4 75.6 5.2 7.4
Percentage of GDP 27.8% 28.1%

Source: The Treasury

The strong corporate tax outturn was spread across most sectors of the economy, with a notable contribution from the finance and investment sectors. The box on page 28 provides further discussion on the impact the corporate tax outturn has had on the fiscal forecasts.

In nominal terms, source deduction revenue contributed the most ($1.7 billion) to tax revenue growth in 2016/17. This growth came mainly from growth in the number of people in employment, with a lesser contribution from growth in personal income rates.

With more people in employment, and those in employment earning more than in 2015/16, domestic consumer spending also grew strongly in 2016/17 (5.6%). This was the major component of the 8.2% growth in goods and services tax (GST) revenue, helped by continued growth in residential construction.

The extent to which the current 2016/17 strength is a permanent uplift in tax revenue is a key judgement in the tax forecasts. The volatility of corporate tax in particular creates some uncertainty. Page 55 of the Risks and Scenarios chapter demonstrates the range of tax revenue outturns under different scenarios.

… while tax revenue grows in line with nominal GDP for the remainder of the forecast period

Most of the growth in the tax revenue forecasts after 2016/17 can be attributed to growth in the nominal economy, with nominal GDP forecast to grow at 4.7% per year on average from 2016/17 to 2020/21.

Figure 2.2 - Core Crown tax revenue and nominal GDP growth
Figure 2.2 - Core Crown tax revenue and nominal GDP growth.
Source: The Treasury

Tax revenue growth remains below GDP growth in 2018/19, mainly owing to the effects of the Family Incomes Package that was included in the Budget Update. Tax revenue is then forecast to grow at a faster rate than GDP, owing to fiscal drag (ie, the effect whereby pay as you earn (PAYE) grows more quickly than underling salary and wage income owing to the progressive nature of the income tax scale), and the effect that increasing deposit interest rates have on resident withholding tax (RWT).

Comparison with IRD forecasts

IRD has also prepared a set of tax forecasts which, like the Treasury's tax forecasts, were based on the Treasury's macroeconomic forecasts. The Treasury's forecasts of core Crown tax revenue are, on average, 0.6% higher than IRD's forecasts. Most of the forecast differences arise from differing assumptions made around interest rates and the difference between wholesale and retail interest rates between the two agencies, and other judgements made in relation to RWT.

This comparison is included in the Additional Information on the Treasury website at

Page top