The Treasury

Global Navigation

Personal tools

4  Conclusions

This paper has examined the revenue responsiveness properties of New Zealand income and consumption taxes, based on the 2001 tax structure and expenditure patterns. Using analytical expressions for revenue elasticities at the individual and aggregate levels, together with a simulated income distribution, values for New Zealand were obtained. Treating income growth as equiproportionate, these suggest that the aggregate income and consumption tax revenue elasticities are both fairly constant as mean income increases, at around 1.3 and 1.0 respectively. This latter estimate assumes that increases in disposable income are accompanied by approximately proportional increases in total expenditure. Allowing for non-equiproportionate income growth reduces revenue elasticities to around 1.1 (income tax) and 0.93 (consumption taxes). If there is a tendency for the savings proportion to increase as disposable income increases, a somewhat lower total consumption tax revenue elasticity, of around 0.85 - 0.90, is obtained at mean income levels which approximate current levels in New Zealand. These elasticities are relatively low by international standards. Examination of the tax-share weighted expenditure elasticities for various goods also revealed that, despite the adoption of a broad based GST at a uniform rate in New Zealand, the persistence of various excises has an important effect on the overall consumption tax revenue elasticity, especially for individuals at relatively low income levels.

Page top