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Revenue and Expenses

Table 3 – Comparison of revenue and expenses
$ million Actual Estimated actual forecast Variance against estimated actual ($m) Variance against estimated actual (%)
Core Crown revenue
Taxation revenue 52,444 50,102 2,342 4.7
Levies, fees, fines & penalties 663 661 2 0.3
Investment income 4,496 4,282 214 5.0
Other revenue 1,567 1,607 (40) (2.5)
Total core Crown revenue 59,170 56,652 2,518 7.5
Core Crown expenses
Social security and welfare 15,598 15,702 104 0.7
Health 9,547 9,563 16 0.2
Education 9,914 10,039 125 1.3
Transport and communications 1,818 1,910 92 5.1
Economic and industrial services 1,592 1,725 133 8.4
Other functional classifications 9,091 8,991 (100) (1.1)
Finance and FX movements 2,061 2,106 45 2.2
GSF liability movement 279 409 130 46.6
Total core Crown expenses 49,900 50,445 545 63.2
Net surplus of SOE/CEs 2,203 2,279 76 3.4
Operating Balance 11,473 8,486 2,987 35.2

Revenue

Tax revenue was higher than forecast by $2.3 billion. The increase against forecast can be broken down as follows:

  • The change in the revenue recognition of provisional tax (refer Changes to the Calculation of Provisional Tax Revenue) added $1.8 billion to tax revenue, split between company tax ($1.2 billion) and other persons tax ($0.6 billion).
  • Apart from the provisional tax change, corporate tax was $0.1 billion higher than forecast owing to slightly higher-than-expected terminal tax assessments, i.e. revenue in respect to prior years, in the June quarter.
  • GST was $0.2 billion higher than forecast owing to higher-than-forecast price pressures in the June quarter, when annual inflation was 4.0% against a Budget Update forecast of 3.4%.
  • Source deductions (mainly PAYE) was $0.1 billion higher than forecast owing to higher-than-expected aggregated salaries and wages in the June quarter. Although wage rate movement was in line with Budget Update forecast, employment expanded by 1.0% in the June quarter whereas the forecast was for a contraction of 0.2%.
Figure 2 - Composition of tax revenue variance to forecast

Changes to the Calculation of Provisional Tax Revenue

Inland Revenue has developed a method of provisional tax revenue estimation that enables a reliable estimate of provisional tax due to be made each month, instead of three times a year. Provisional tax revenue reported in these financial statements is calculated in accordance with this new estimation method.

The new method better aligns tax revenue estimation with the accounting policy for tax revenue, which is to recognise tax revenue at the time the debt to the Crown arises i.e. when the taxable income is earned by the taxpayer. In the case of provisional tax, the Crown ‘earns’ income when the economic transaction that gives rise to the income tax occurs, e.g. when a company sells some goods or a plumber fixes a leaking tap.

The method provides a more reliable estimate of the taxes owed at balance date than the old method. It also avoids revenue fluctuations arising solely from changes to the payment due date, as occurred with the changes to provisional tax due dates announced in the 2005 Budget.

Implementing the new method in the 2005/06 Government Financial Statements has resulted in a $1.8 billion increase in tax receivables in the Statement of Financial Position and an equivalent one-off increase in tax revenue in the Statement of Financial Performance. These increases reflect tax revenue earned in April, May and June 2006 but not due for payment until after June 2006. In effect, tax revenue for this transition year captures more than just the normal 12 months of provisional tax revenue.

These changes to estimating provisional tax revenue for financial reporting do not impact on taxpayers’ obligations or tax receipts; hence there are no cash flow impacts for the Crown.

The diagram below illustrates the impact in the transition year of 2006 whereby accruals from both the June 2005 quarter and the June 2006 quarter are included in the 2006 results.

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