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Pre-election Economic and Fiscal Update 2017

Comparison to the Budget Update

The Budget Update was published on 25 May 2017. Since then, there have been a number of developments that have impacted the fiscal outlook, in particular the 2016/17 outturn which was stronger than estimated. Subsequent to that, the forecasts for the next four years remain fairly close to the Budget Update forecasts.

Table 2.9 below summarises the changes in the key fiscal indicators.

Table 2.9 - Key fiscal indicators compared to the Budget Update
Year ending 30 June
Core Crown tax revenue          
Pre-election Update 75.6 78.3 81.3 85.8 89.8
Budget Update 74.6 77.5 81.0 85.9 89.9
Change 1.0 0.8 0.3 (0.1) (0.1)
Core Crown expenses          
Pre-election Update 76.8 81.0 83.7 86.1 89.5
Budget Update 77.5 80.5 83.5 86.2 89.2
Change (0.7) 0.5 0.2 (0.1) 0.3
OBEGAL (excluding minority interests)          
Pre-election Update 3.7 2.9 3.5 5.7 6.4
Budget Update 1.6 2.9 4.1 6.1 7.2
Change 2.1 (0.0) (0.6) (0.4) (0.8)
Core Crown residual cash          
Pre-election Update 1.5 (1.4) (1.4) 1.7 1.1
Budget Update 0.1 (1.8) (1.6) 1.7 1.4
Change 1.4 0.4 0.2 0.0 (0.3)
Net core Crown debt          
Pre-election Update 60.6 62.2 63.7 62.0 60.8
Budget Update 62.3 64.1 65.7 64.2 62.8
Change 1.7 1.9 2.0 2.2 2.0
Net worth attributable to the Crown          
Pre-election Update 108.9 114.5 121.2 130.4 140.6
Budget Update 100.0 105.6 112.6 122.1 133.0
Change 8.9 8.9 8.6 8.3 7.6

Source: The Treasury

2016/17 Core Crown tax revenue is expected to be $1.0 billion higher than the Budget Update...

Core Crown tax revenue for the 2016/17 financial year is forecast to be $1.0 billion (1.3%) higher than the Budget Update forecast.

Corporate tax, GST and source deductions were the tax types that varied most from the Budget Update (Figure 2.20).

Figure 2.20 - Movement in core Crown tax revenue since the Budget Update
Figure 2.20 - Movement in core Crown tax revenue since the Budget Update.
Source: The Treasury

The higher-than-expected corporate tax revenue was spread around most sectors of the economy, but with a notable contribution from firms operating in the finance and investment sectors. Included in this, Portfolio Investment Entity (PIE) tax contributed around $80 million to the corporate tax variance. Such profits are inherently volatile and therefore difficult to forecast accurately.

At the time of the Budget Update, employment levels were running above forecast, but this had not translated into above-forecast source deductions. Since that time, the strength in employment became evident in the PAYE data, which moved steadily ahead of forecast.

Although 2016/17 GST revenue was above the Budget Update forecast, underlying GST strength may actually be timing in nature, as indicated by the GST receipts outturn, which was 0.5% below forecast. There is more support in the macroeconomic data for the 2016/17 GST receipts position than for the revenue position, with most of the major indicators of GST (eg, domestic consumption, residential investment and net tourist spending) being either close to or a little below their Budget Update forecasts.

As discussed earlier in the Core Crown tax revenue section, not all of the 2016/17 tax revenue strength has been assumed to continue through the remainder of the forecast period.

The net effect of these temporary and permanent factors was that, before considering the effect of changes in the macroeconomic forecast, the tax forecasts were increased by around $0.4 billion each year from 2017/18 onwards.

…but when combined with a lower outlook for GDP growth…

The outlook for nominal GDP growth has been revised downwards since the Budget Update, as shown in Figure 2.21.

Figure 2.21 - Nominal GDP growth forecast, Budget Update and Pre-election Update
Figure 2.21 - Nominal GDP growth forecast, Budget Update and Pre-election Update.
Source: The Treasury

In addition to the overall decrease, individual components of GDP have also been revised as follows:

  • Forecasts of aggregate employees' compensation have been increased, mainly as a result of a higher forecast for growth in wage rates.
  • The forecast for growth in operating surpluses are now lower than in the Budget Update (the box on page 33 provides further discussion on the impact of the corporate tax fiscal forecasts).
  • As mentioned in the Economic Outlook chapter, the forecast for residential investment growth has been reduced.

In total, changes in the macroeconomic forecast were slightly positive ($0.2 billion) for the tax revenue forecast in 2017/18, but slightly negative ($0.2 to $0.4 billion per year) thereafter.

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