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Pre-election Economic and Fiscal Update 2017

Comparison to the Budget Update (continued)

…resulted in core Crown tax revenue forecast being similar to the Budget Update in the last few years of the forecast

The sum total of all of these factors has increased the total core Crown tax revenue forecast by $0.8 billion in 2017/18, but with very little net effect through 2018/19, 2019/20 and 2020/21. The largest forecast movements were in:

  • source deductions, which is $1.6 billion higher in total than in the Budget Update, mainly owing to the higher starting position and a higher forecast for growth in wage rates
  • corporate tax, which is expected to be higher than in the Budget Update in 2017/18, mainly owing to the higher 2017 starting position, but is expected to be similar to the Budget Update forecast by 2020/21, and
  • GST, in which the forecasts are lower than in the Budget Update, mainly owing to the reduced outlook for residential investment growth.
Table 2.10 - Reconciliation of the change in core Crown tax revenue
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021
Forecast
Total
Change
Movement in core Crown tax owing to:            
Source deductions 0.2 0.1 0.3 0.4 0.6 1.6
Other persons tax (0.1) - (0.1) (0.2) (0.2) (0.6)
Corporate tax 0.6 0.6 0.3 0.2 0.1 1.8
RWT - 0.1 - (0.1) (0.3) (0.3)
GST 0.2 (0.2) (0.4) (0.5) (0.4) (1.3)
Other taxes 0.1 0.2 0.2 0.1 0.1 0.7
Total movement in core Crown tax revenue 1.0 0.8 0.3 (0.1) (0.1) 1.9
Plus: Budget Update tax base 74.6 77.5 81.0 85.9 89.9  
Core Crown tax revenue at 2017 Pre-election Update 75.6 78.3 81.3 85.8 89.8  
As a % of GDP 28.1% 27.7% 27.4% 27.6% 27.8%  
Core Crown tax movements consist of:            
Other policy initiatives - - 0.1 0.1 0.1 0.3
Forecast changes 1.0 0.8 0.2 (0.2) (0.2) 1.6

Source: The Treasury

OBEGAL is higher in the short term …

The 2016/17 OBEGAL is likely to be significantly higher than the Budget Update while subsequent years are similar to the previous forecast. The major movements since the Budget Update are outlined in Table 2.11 below.

Table 2.11 - Changes in OBEGAL since the Budget Update
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021 Forecast
OBEGAL - 2017 Budget Update 1.6 2.9 4.1 6.1 7.2
Changes in forecasts:          
       Tax revenue forecasts 1.0 0.8 0.3 (0.1) (0.1)
       ACC results - (0.2) (0.6) (0.2) (0.2)
       Other SOE and CE results 0.3 - (0.1) (0.2) (0.1)
       Transport spending - (0.3) 0.1 0.2 (0.3)
       Net finance costs - 0.1 0.1 0.3 0.3
       Other changes 0.8 (0.4) (0.4) (0.4) (0.4)
Total changes since the Budget Update 2.1 - (0.6) (0.4) (0.8)
OBEGAL - 2017 Pre-election Update 3.7 2.9 3.5 5.7 6.4

Source: The Treasury

In addition to the tax revenue forecast changes discussed above, other changes to OBEGAL forecasts include:

  • ACC's OBEGAL results are forecast to decline in the last four years of the forecast period as a result of updating assumptions following the completion of the outstanding claims liability valuation at 30 June 2017. This resulting increase in expenditure is largely owing to two impacts since the Budget Update, a reduction in the discount rate (meaning the forecast cost of new claims in today's dollars is higher than estimated at the Budget Update) and a change in the assumptions relating to the in-between travel settlement with care providers.
  • Other SOE and CE results are forecast to have a positive impact on OBEGAL in the 2016/17 fiscal year. These improved results are not expected to continue across the forecast period, with a slight deterioration from previous forecasts expected in the later years.
  • Transport operating expenditure has increased, largely owing to the reclassification of capital spending in relation to the re-instatement of the Picton to Kaikōura state highway to operating spending.
  • Net finance costs have reduced in the later years of the forecast owing to lower interest rates than previously forecast.
  • Other changes include the re-phasing of expenditure in the current year until later in the forecast period along with expected increases in social assistance expenses (mainly owing to the upward revision of the wage growth increasing New Zealand Superannuation expenditure, partially offset by other benefit types as a result of a mix of lower inflation and a lower starting point in regards to recipients).

...while net core Crown debt is consistently lower across the forecast period compared to the Budget Update

Net core Crown debt is expected to be around $2 billion lower than the Budget Update in all years of the forecast (Table 2.12). This is largely owing to the expected 2016/17 result flowing through to the change in net core Crown debt in 2020/21, residual cash is neutral 2017/18 to 2020/21, leading to net core Crown debt being broadly in balance also.

Overall, tax receipts have a positive cash impact on net debt totalling $1.9 billion by the end of the forecast period. Changes to the timing and amount of operating and capital spending have reduced net core Crown debt since the Budget Update, particularly in the current year.

Table 2.12 - Changes in net core Crown debt since the Budget Update
Year ending 30 June
$billions
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
2021 Forecast
Net debt - 2017 Budget Update 62.3 64.1 65.7 64.2 62.8
Changes in forecasts (cumulative):          
       Tax receipts (0.4) (1.2) (1.7) (1.8) (1.9)
       Net finance costs - (0.1) (0.2) (0.3) (0.4)
       Transport spending changes (0.1) (0.1) 0.1 0.2 0.4
       Re-phasing of expenditure (0.5) - 0.1 - -
       Other changes (0.7) (0.5) (0.3) (0.3) (0.1)
Total changes since the Budget Update (1.7) (1.9) (2.0) (2.2) (2.0)
Net debt - 2017 Pre-election Update 60.6 62.2 63.7 62.0 60.8

Source: The Treasury

The Transport spending changes are a mix of changes from capital to operating, timing of expected cash flows and an increase in capital spending subsequent to the Budget Update, including improvements being made to State Highway 1 (in the Kaikōura area), increasing the overall spending on roading projects.

Some re-phasing of expenditure has been forecast reflecting the latest information on when costs are going to be incurred, particularly around the timing of capital expenditure.

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