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Media StatementJune 2006 Tax Outturn: Changes to Estimating Tax Revenue

25 August 2006

There will be significant changes to the way provisional tax revenue is estimated in future Crown financial statements, the Treasury said today at the release of the June 2006 Tax Outturn.

The Treasury has received advice from the Inland Revenue Department that it has reviewed its provisional tax revenue estimation method and concluded that provisional tax revenue can be reliably estimated when it is incurred or earned, rather than when ‘payment is due’, as has been the case up until now.

“The Treasury concurs that the new method will enable a more timely estimate of provisional tax owing to the Crown and should therefore be incorporated into all future Tax Outturn reports and Crown Financial Statements,” said Peter Bushnell, the Treasury’s Deputy Secretary responsible for the Budget and Macroeconomic Branch.

“The change will provide a more reliable estimate of provisional taxes owed to the Crown at any point in time, better reflect revenue actually earned for a reporting period and it will also avoid the fluctuations in provisional tax revenue due to changes in payment dates, as occurred in the 2005 Budget tax revenue forecasts for instance.

“This revised method for estimating revenue, combined with tax receipt data currently provided, gives a more complete picture of both the Crown’s tax revenues and cash flows.

“The transition to the new estimation method will result in a one-off adjustment reflecting more than just the usual 12 months of provisional tax revenue being reported in the 30 June 2006 financial statements. This is simply bringing forward revenue that would have been recognised in the 2006/07 financial year under the ‘payment due’ approach, so is not an increase in total tax revenue. At this stage, the Treasury expects that the increase in tax receivable in the 2005/06 year may be in the order of $1.5 to $2 billion,” he said.

The figures contained in today’s June Tax Outturn are the last that will be produced using the old estimation method of recognising revenue at the date payment is due.

Revised June 2006 Tax Outturn figures, using the new estimation method, will be released in the first half of September, along with indicative tax revenue outturn figures for the last few years using the new method and re-estimates of tax revenue forecasts for the next few years.

The 2005-2006 Crown Financial Statements for the financial year that ended on 30 June, are due to be tabled in Parliament before 13 October.

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Christopher Ritchie | Communications
Tel: +64 4 917 6056
Email: christopher.ritchie@treasury.govt.nz
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