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Corporate tax forecasts

The outturn for corporate tax in 2016/17 is expected to be strong…

Corporate tax growth in the 2016/17 year is expected to have been particularly strong, currently estimated at 12.5% (Figure 2.3).

Figure 2.3 - Core Crown corporate tax
Figure 2.3 - Core Crown corporate tax.
Source: The Treasury

This box outlines the key assumptions and judgements applied to the corporate tax forecasts, which is not expected to continue to grow at such a pace.

…but the rate of growth is not expected to continue at the same pace…

Although corporate tax is expected to rise across the forecast period, this rate of growth is unlikely to persist. There are two factors contributing to this: macroeconomic factors and the relatively high investment returns earned in the finance/investment sector in 2016/17 that are not assumed to continue.

Analysis of the latest corporate tax assessment data indicates that a large portion of the 2016/17 tax revenue growth was spread across most sectors of the economy, and across firms both large and small.

Since the increase in tax revenue is broad-based, we have made a judgement that it is likely some permanent effect will persist into later years of the forecast period.

The contribution to 2016/17 corporate tax growth from the finance and investment sectors may not be so permanent. The growth in finance/investment sector tax occurred in a year of relatively high investment market returns which, in our judgement, is unlikely to occur every year as this level of volatility un this sector is not unusual.

Overall, after taking account of these factors, total corporate tax revenue is expected to continue to rise in each year of the forecast period, reaching $16.2 billion (5.0% of GDP) by 2020/21.

... and corporate tax forecasts are higher than the Budget Update.

As a result, while the forecasts are $1.7 billion higher than at the Budget Update across the forecast period, $1.2 billion of this lift occurs in the 2016/17 and 2017/18 years. As there has been some downgrade to the macroeconomic outlook for operating surpluses relative to the Budget Update (see macroeconomic bars in Figure 2.4) by the last year of the forecast the corporate taxes are only $86 million higher in 2020/21 (Figure 2.4).

Figure 2.4 - Core Crown corporate tax compared to the Budget Update
Figure 2.4 - Core Crown corporate tax compared to the Budget Update.
Source: The Treasury
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