wiki

Te wiki o te tāke; Eroding the Generic Tax Policy Process gains momentum in 2021 – Interest.co.nz

Summary

The Week In Tax · Half Year Economic Update, Covid-19 update & looking back at the big tax stories of 2021

On Wednesday, the Government released its Half Year Economic and Fiscal Update (HYEFU) on what was announced in May’s Budget back in May. From a tax perspective the Government’s tax take – the fiscal outlook – is expected to improve over the forecast period to 30 June 2025.  Although the HYEFU expects things to weaken in the current year to June 2022, it is seeing quite strong…….

The Week In Tax · Half Year Economic Update, Covid-19 update & looking back at the big tax stories of 2021


On Wednesday, the Government released its Half Year Economic and Fiscal Update (HYEFU) on what was announced in May’s Budget back in May. From a tax perspective the Government’s tax take – the fiscal outlook – is expected to improve over the forecast period to 30 June 2025.  Although the HYEFU expects things to weaken in the current year to June 2022, it is seeing quite stronger than expected tax revenues coming through.

Treasury expects over the five-year period for core Crown tax revenue to increase by $36.6 billion or $7.3 billion each year.  This is expected to be in line with the expected economic growth.  Core Crown tax revenue will remain at about 29% of GDP over the period. What it will mean is even though they expect a slight downturn in in the year to June 2022, core Crown tax revenue is expected to exceed $100 billion dollars for the first time.

Now one reason for the Government’s expected increased tax take is a stronger outlook for the labour market, but it’s expecting employees’ wages to rise.  As a result, fiscal drag will lead to a higher tax take.  Fiscal drag is when an individual’s tax rate increases as their income crosses a rate threshold.  For example, over $48,000, the tax rate jumps from 17.5 to 30% and then at $70,000 it goes to 33% and then over $180,000 it goes to 39%.

The fiscal drag effect is expected to be quite strong. It also implies that, at least for this forecast period, the Government is not planning on making many adjustments to those thresholds, which have not been adjusted at all since 1 October 2010, other than the introduction of the new 39% rate this year.

There is also an interesting snippet about the rise in the amount of GST that’s been collected. That is apparently a by-product of the lockdowns and the inability to travel overseas.  People are therefore spending more in New Zealand, whereas if they go on holidays, that spend happens outside New Zealand and there’s no GST for the Government.

The half year forecast also includes estimates of the impact of tax policy changes and the big one here is the denial of interest deductions for residential property investors.  Over the period to 30 June 2025 this is expected to bring in over $1.1 billion.   As you’re aware the interest deductions are limited to 75% as of now and then gradually over time deductions will be removed in full.  For the period to June 2022 the impact is estimated at $80 million, and that rises to $490 million in the period to June 2025. Of course, there’s an election in between now and then and the legislation hasn’t been finalised, but we will see how that plays out over the forecast period.  

These half year forecasts are interesting, they’re indicative only, and things can change quite rapidly …….

Source: https://www.interest.co.nz/business/113847/te-wiki-o-te-t%C4%81ke-record-tax-take-ahead-never-mind-covid-19-ground-breaking