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5  Revenue

5.1  Which tax types are projected?

The New Zealand tax regime has more than 20 different categories of tax that are reported in the Government accounts.[11] For projection purposes, the various tax types are aggregated into three tax types, as outlined below.

  • Source deductions - the tax withheld on wages, salaries, social welfare transfers, bonuses, lump-sum payments and private superannuation fund contributions. The majority comes from pay as you earn (PAYE) on wages and salaries. Source deductions accounts for more than 40% of New Zealand's tax take.
  • Corporate tax - the tax types paid by companies in New Zealand on their profits and on the dividends they pay out or receive from overseas entities. Corporate tax comprises net (after refunds) company tax, non-resident withholding tax and foreign dividend withholding payments. Company tax, paid on company profits, accounts for more than 80% of corporate tax.
  • Other taxes, including GST - this covers all the remaining tax types, such as goods and services tax (GST), fringe benefit tax (FBT), other persons tax (generally tax on self-employed individuals operating unincorporated businesses), resident withholding tax on interest income, excise duties, customs duty, and several smaller tax types such as gaming duties and road user charges (RUC). GST is by far the largest tax type in this aggregate group, accounting for about half of the dollar value in the “Other” grouping.

There are many ways that the tax types could be grouped for long-term projections. However, with the exception of source deductions, all tax types are projected predominantly by holding them as a constant ratio of nominal GDP, which means the choice of aggregation is not so critical. Our categorisation of tax types for the 2009 Statement was informed by the following considerations.

  • Separating out source deductions, because it is modelled differently from the others tax types, with the ability to incorporate fiscal drag being its main distinguishing feature.
  • Projecting corporate tax by itself, because it is dominated by company tax, for which the rate was lowered from 33% to 30% in 2008. Keeping this tax separate allows scenarios to be easily produced, if the company tax rate changes again.
  • The majority of the other tax types are not large enough to warrant being projected by themselves and are mainly consumption driven (other persons tax is income-based). Hence they are bundled in with GST, as the components of GDP driving them will mainly be the same as those driving GST.

Notes

  • [11]See note 1 in Budget 2009 - Notes to the Forecast Financial Statements.
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