Budget 2006: Wide variation in tax revenue forecasts

How much business will benefit from the coming overhaul of the business taxation system will depend in part on whose tax forecasts prove closer to the mark - Treasury's or Inland Revenue's - Finance Minister Michael Cullen indicated yesterday.

There is an unusually wide variation in the tax revenue forecasts of the two agencies over the next three years.

The differences mainly relate to company tax and PAYE.

In the 2007/08 year, IRD expects to see $600 million more PAYE coming in than the Treasury does and $1 billion more corporate tax.

The Treasury's forecast - which is the official one for Budget purposes - is based on its macroeconomic forecasts and their expected impact on profits. It incorporates a cyclical build-up of tax losses which then run out over the next few years.

The IRD uses a survey of taxpaying companies.

Cullen said its forecasts would "create more headroom for the business tax review.

"The Government is placing its emotional bets on the Inland Revenue but it has to place its forecasting bets on the Treasury, because that is what the law requires."

A discussion document on options for revamping business taxation is expected in July but any changes would not take effect until April 1, 2008.