Treasury warns '$1.8bn extra revenue' an illusion

Revised tax revenue figures released by The Treasury today make it appear the Government pulled in $1.8 billion more in the 2005/2006 year than it estimated in the budget - but the department has warned it is just an illusion.

Treasury and Inland Revenue have changed the way they estimate tax revenue, now notching up tax when it occurs, not when payment falls due.

Treasury sensitivity over the issue was highlighted in an accompanying press release with Treasury's deputy secretary Peter Bushnell emphasising that Finance Minister Michael Cullen had not come in for a windfall.

"In this year of transition, no one should mistake this to represent an increase in underlying tax revenue available to the Crown," Dr Bushnell said.

Total tax revenue of $54.4 billion booked in 2005/06 using the old payment-based system has been boosted by $1.8 billion of provisional tax accrued in 2005/06, which under the previous accounting system would not have been booked until the September quarter.

To allow comparisons Treasury has recalculated previous data and estimates using the new system.

This shows the tax take for the 2005/2006 financial year was now estimated to be $56.2 billion or $224 million (0.4 per cent) above what the budget forecast would have been had the new system been used.

GST contributed $126 million and source deductions, mostly PAYE, accounted for $119 million of the variance.

Treasury said the labour market was performing more strongly than it estimated and this accounted for variance.

Higher than predicted inflation would also have driven up the GST take.

The Government is keeping a careful eye on Treasury's estimates for revenue as it will indicate how much room Dr Cullen has to move on changes to business taxes and their potential flow on effect to personal taxes.

Dr Bushnell said the changes to tax revenue calculation have no implications for the differences between IRD and Treasury tax forecast tracks highlighted in Budget 2006.

"Neither set of forecasts included this change so the forecast variances of both departments have been affected similarly. More importantly, the two sets of tax projections were quite similar for both 2005/06 and 2006/07 and it was not until fiscal 2007/08 that there was a significant difference between the two sets of forecasts," Dr Bushnell said.

Dr Cullen said on Tuesday that it was too early to make predictions about how much was available for changes, but a clearer picture would emerge by February when decisions had to be made.

The July 2006 tax outturn report is expected to be published on September 14 and the 2005-2006 Crown Financial Statements for the financial year that ended on 30 June, are due to be tabled in Parliament in October.

- NZPA