Tax revenues down

April 9th, 2014 at 1:00 pm by David Farrar

Stuff reported:

Worsening budget deficits raise serious questions about National’s management of the economy and its books, Labour finance spokesman David Parker says.

He was speaking after Treasury today reported that the Budget had continued to worsen. A lower take had pushed the books into the red by $1.4 billion, $884 million more than expected.

Parker said for four months in a row the books were worse than predicted, with tax revenues falling short of expectations.

“For the November and December figures Treasury said there were timing issues. They were given a bit of leeway. But now even Treasury admits it doesn’t know why the books are even more in the red.

“Somehow (Finance Minister) Bill English is presiding over a growing economy but not getting the tax revenue that should be coming with it. He needs to explain himself.”

Tax revenues are notoriously difficult to project. Even an individual company can easily find its profit will vary from forecast by 10% to 20%. The Government’s tax revenues are based on projecting the combined profits and hence tax payments of several hundred thousand companies. And that’s just on an annual basis – let alone on the monthly forecasts.

Employers may be hiring extra staff which reduces profitability and tax in the short-term. They may be purchasing assets which increases depreciation.

Or it may be that heightened business confidence and economic growth is not actually being reflected in profitability and tax for structural reasons – which would be more of a concern.

English said the figures reinforced the need for restraint in government spending.

“We remain committed to reaching a surplus next year and Budget forecasts next month will confirm we are on track,” he said.

“It is a challenging task that will be achieved only if we remain disciplined.”

Yep. The Government has limited control over how much tax is paid to it by the private sector. It does however control how much money the Government will spend.  Hence the constant need for fiscal discipline.

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45 Responses to “Tax revenues down”

  1. mikenmild (11,246 comments) says:

    Raises the interesting question of what the government might have to do to still produce the forecast surplus for 2014/14.

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  2. wreck1080 (3,800 comments) says:

    Fiscal discipline?

    http://www.stuff.co.nz/national/politics/9918856/Welcome-to-the-bureaucrat-capital

    Not sure what to make of this article. But, to believe it would mean national are doing a rubbish job of reducing the size of government as they said they would.

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  3. Sir Cullen's Sidekick (835 comments) says:

    “Bill English cannot add two numbers together” – The great Chief of Staff and Tax manipulator Matt.

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  4. Alan (1,080 comments) says:

    All of these variables may happen to an individual company, but in meta terms they should even out in the economy at large.

    National have staked a hell of a lot of political credibility on surplus, failing is going to be toxic.

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  5. Ed Snack (1,794 comments) says:

    Is the shortfall due to any one sector or tax type ? One cause (unlikely to me to be so large) is that increased investment spending in capital items may generate additional pre-tax deductions

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  6. NK (1,128 comments) says:

    This doesn’t surprise me, and I see one commenter above has alluded to the size of government numbers reported in the Dom Post today: http://www.stuff.co.nz/national/politics/9918856/Welcome-to-the-bureaucrat-capital

    Then there’s the spending issue, raised time and time again. Yet, check this out: http://dimpost.wordpress.com/2014/04/08/politics-lies-and-the-economy/

    I expect the usual criticisms, “It’s Danyl who’s a raving leftie” wah, wah, wah. I guess you could argue the numbers lie, but it wouldn’t be a very strong argument.

    I recall making the point in election meetings at the last election that spending under National had gone up as a percentage of GDP. All the talk in the world about “fiscal prudence” is just that – talk. National has historically been good at tinkering better than Labour tinkers. But the tinkers are disguised by fiscal prudence blinkers.

    I know John Key says spending as a % of GDP will track down to 25% of GDP within the next ten years. But I don’t believe him. It will take a remarkably courageous government to effect that change; and I can’t see much courage coming out of the present profligacy.

    Sadly, National talks the talk, but rarely walks the walk. That’s why we need ACT back, and in numbers.

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  7. burt (8,019 comments) says:

    Clearly we need to increase all income tax to 99% – the left constantly tell us taxes need to go up to increase tax revenue.

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  8. mjw (352 comments) says:

    This is a leading indicator for the economy. Looks like we are not seeing more jobs (leading to PAYE), and companies are not paying more tax. So just who is benefiting from the rock star economy, and why aren’t they paying tax?

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  9. Peter (1,663 comments) says:

    The economic growth may be limited to certain sectors. It appears to me money isn’t flowing through the economy the way it used to….. it certainly ‘aint flowing through Wellington.

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  10. rangitoto (221 comments) says:

    The treasury miscalculated how much it would increase but the tax take is still significantly higher than it was a year ago. The tax man did much better than the economy as a whole.

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  11. mjw (352 comments) says:

    NK – not so sure about ACT. Aren’t they the party who provided the decisive vote to sell a monopoly to Sky City in return for a convention centre? If selling monopolies is what ACT do, we don’t need them. We need parties that protect consumers and taxpayers, not parties who practice crony capitalism.

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  12. kowtow (7,926 comments) says:

    Tax revenues down?

    Great.This spending gummint will be forced to trim the enormous fat there is all around.

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  13. mister nui (1,006 comments) says:

    And they’re going to continue trending down – the fucking Kiwi $ has just smashed through 87c vs. the USD.

    Not sure that it has been at this level since post-float….

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  14. Manolo (13,516 comments) says:

    Labour Lite will lower increase GST to solve the problem!

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  15. rangitoto (221 comments) says:

    “Tax revenues down?”

    No. They are up significantly. We are just not being ripped off to the extent treasury predicted.

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  16. mjw (352 comments) says:

    rangitoto – the economic narrative from the government and other international bodies is based on the forecasts, not on the historical comparison. The ‘rock star’ economy appears to be having wee lie down at the moment …

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  17. rangitoto (221 comments) says:

    I prefer actual data over what some witch doctor in treasury pronounces

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  18. Rex Widerstrom (5,327 comments) says:

    @rangitoto

    Precisely. I find DPF’s assertion that “Government has limited control over how much tax is paid to it by the private sector” highly amusing. Really? Only the government has the power to set an entirely arbitrary amount it can demand from your earnings, with no regard for your ability to pay and whether it leaves you enough to get by; and to keep increasing that amount to pay for its additional expenditure without your having any say in the matter; and to imprison you if you fail to comply.

    I do hope Labour’s strategists have popped that little bit of reasoning away for the day when he’s criticising a Labour government’s fiscal performance.

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  19. regb (1 comment) says:

    Love to see the greens alternative budget without the tax from all the business they want to close down, “dirty dairy” oil and gas, Lotto, Sky City, water storage dams, fishing etc. Green candidate on east coast thought bees could be the replacement

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  20. lazza (369 comments) says:

    A billion out in the Crown Accounts and a merely budget at that! This annot be parlayed into a cock up or even as “remarkable” in any logical sense.

    A figure this large as this … is small (immaterial) in public sector finance terms … I explain.

    On any basis you like it is a trivial amount, for example as a proportion of government assets it would get lost in the rounding … as a percentage of annual Crown revenues and expenditure it would amount to probably somewhwre between 1 and 2%.

    So … all of you financial alchemists … see if you can stay within these same tolerances for your own corporate budgetting or for that matter when it comes to trying to balance your personal cheque books.

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  21. prosper (139 comments) says:

    The tax take has increased substantially in both personal and corporate, over last year, I think 6 and 5 percent respectively. This clearly presents a case for further tax cuts to increase the tax revenue over all. MSM is guilty of spinning the facts to get a negative head line.

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  22. dime (9,662 comments) says:

    maybe we should make the bottom 50% pay their fair share?

    “Even an individual company can easily find its profit will vary from forecast by 10% to 20%.”

    yep. Dimes glorious company is on track to finish with a nett profit 18% higher than what he anticipated in December.

    Do you have any idea how many hookers that means?? Dime does. too bad hes a relationship dime now :(

    anyway, piss off parker. youre creepy lookin

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  23. wikiriwhis business (3,883 comments) says:

    $6 billion owed to IRD by wealthy tax evaders. They are doing far more damage than any benficiaries.

    The low tax take has to have to do with the closures of manufacturers which began with the Muldoon govt bankrupting small business.

    Certainly explains the manufacturing crisis. No business no taxes. No wonder we import so many foreigners to broaden the tax base.

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  24. wikiriwhis business (3,883 comments) says:

    “maybe we should make the bottom 50% pay their fair share?”

    Pfffft.

    No , make the wealthy tax evaders pay what they owe.

    $6 billion

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  25. wikiriwhis business (3,883 comments) says:

    “Clearly we need to increase all income tax to 99% …”

    The reason income tax was introduced was because an economist told Woodrow Wilson if he did not tax the people they would not work. Of course a total lie when people need to house, feed, cloth, educate themselves and their families.

    Now we told taxes need to go up to 99%. What would be the point of working.

    Too much big govt spending too much while the citizens get the blame for them

    and the wealthy avoid tax to the tune of $6 billion

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  26. UrbanNeocolonialist (229 comments) says:

    With GDP growth at around 3% and GDP of $220 billion a yearly increase in Govt debt of $1.8 billion on top of existing 60 billion wouldn’t increase the debt as a proportion of GDP (now at 27.1%).

    wreck1080: NZ population has grown about 7% since 2008, so holding civil service to slightly less than 0% isn’t terrible (but not great either, there is/was a lot of fat to trim)

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  27. wikiriwhis business (3,883 comments) says:

    “And they’re going to continue trending down – the fucking Kiwi $ has just smashed through 87c vs. the USD.

    Not sure that it has been at this level since post-float….”

    And you think the US dollar isn’t going to crash

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  28. RightNow (6,839 comments) says:

    wikiriwhis business:

    “make the wealthy tax evaders pay what they owe.

    $6 billion”

    No doubt you will be supporting National then, given that they have increased the budget for combating tax fraud from $89 million in 2008/2009 to $125 million in 2013/2014.

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  29. OneTrack (2,806 comments) says:

    burt – “Clearly we need to increase all income tax to 99% ”

    You must be a neolib. Surely we must increase all income tax to 100%, for the benefit of the glorious state. What could go wrong?

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  30. OneTrack (2,806 comments) says:

    “So just who is benefiting from the rock star economy”

    Where did this “rock-star economy” meme come from anyway? Surely we are struggling along, sort of ok, but the slightest knock (such as a hard-left labour/green government) will cause any “recovery” to stall.

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  31. OneTrack (2,806 comments) says:

    wiki – “$6 billion owed to IRD by wealthy tax evaders”

    Are you saying that the public servants in the IRD are ignoring their rich mates tax obligations? Where did the 6 billion come from? Is that what Russel said they should be paying based on a 99% tax rate?

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  32. Rex Widerstrom (5,327 comments) says:

    Even if IRD could be bothered waking from its slumber to catch them, wikiriwhis business, they’d be let off lightly.

    The average tax dodger steals just over $800,000 while the average benefit fraudster scores just $67,000.

    But while just 22% of those who defraud their fellow taxpayers get a custodial sentence, a full 60 percent of those who defraud WINZ are sent to jail.

    Benefit fraud costs each of us $5 a year. Tax evasion, while harder to estimate, is reckoned to cost us each $1,500 a year.

    Any minute now I’m expecting a press release from Paula Bennett about how many tax evaders have been caught having the temerity to travel overseas!!!

    [source: Victoria University]

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  33. itstricky (1,693 comments) says:

    No doubt you will be supporting National then, given that they have increased the budget for combating tax fraud from $89 million in 2008/2009 to $125 million in 2013/2014.

    If we believe the article they aren’t getting much value for their increased investment, are they? They should ask the Government to put the thumbscrews on IRD.

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  34. EAD (821 comments) says:

    I have been watching with wonder as the economic news flowing from NZ has been spun to give the impression of robust growth. How do you explain the pick up in growth to a mature country that has been struggling under the millstone of non-productive debt?

    “Rock-star” economy, “stonking” growth, rapidly rising “GDP” (as if measuring the cash value of transactions is a good way to measure growth), “fiscal discipline” and the hummdinger above “heightened business confidence and economic growth is not actually being reflected in profitability and tax for structural reasons”!!!

    A good thing is that as I type this comment, the 2 most popular comments are from Wreck1080 & NK who are both calling bullshit to the propaganda that we are experiencing genuine non-credit driven growth and that the National Party is in anyway fiscally disciplined. It just proves the old axiom that you can’t fool all of the people, all of the time.

    Disclosure – lest anyone think I am attacking the Gnats from the left, my vote this year will going to Act or the Conservatives who might be able to bring a bit of sanity to the stewardship of this country.

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  35. Alan (1,080 comments) says:

    @ EAD “my vote this year will going to Act or the Conservatives who might be able to bring a bit of sanity to the stewardship of this country.”

    How can anyone be debating between these 2 parties, they share nothing in terms of policy. One is a small state free market party that believes in personal freedom, the other a big state, no asset sales, socially interventionist and economic nationalism straight from the Winston Peters playbook.

    They’re about as far apart as you can get, surely you know what one you prefer ? Either position is consistent, but they are utterly contradictory.

    If you’re looking for someone to prop up National, why don’t you just vote National ?

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  36. slijmbal (1,223 comments) says:

    Tax evasion is a pretty hard to estimate figure as by definition most is not caught. It would somewhere in the region of 3% of GDP for the likes of NZ and a rough estimate at that but all this talk of it being rich pricks is ill informed and comes across as a left wing meme allowed to fester without being challenged.

    The vast bulk of tax evasion in these bad estimates however, is via the black economy. It’s the plumber who takes cash, the shop keeper who does not ring up the amount on the till etc These tend not to be rich people. I’m sure many see the evasion as justifiable as they see others on welfare living off them, in effect.

    The rich and corporates don’t need to break the law as they pay accountants to legally reduce their tax liability. The cases where someone rips several hundred K off the tax (e.g. Unite Union) do not make up the bulk of tax evasion.

    The audit department of the IRD has a huge payoff, several times the cost to run and is getting better at its job thus the increase in send.

    The fact that white collar fraud tends to be punished lightly for the $’s involved has more to do with our justice system but locking them up for 30 years would have little impact on tax evasion. There may be other factors in play here e.g. beneficiaries may be more likely to have a history of offences and sentencing is affected by this but I don’t know enough to really say but do suspect the current representation of beneficiaries being picked on is bollocks having seen the (lack of) justice (to victims) system in action. There are a lot of 2nd, 3rd, 4th, 5th etc chances.

    Back to the post. The fact that tax take isn’t increasing as fast as thought should be concerning. Historically, it has jumped leaps and bounds when the economy recovers. This indicates that may be issues in the economy whether they be increased costs, capacity issues etc or some combination thereof that are limiting growth.

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  37. seanmaitland (472 comments) says:

    @wreck1080 – learn to read dude – all that article says is that numbers in Wellington have gone up. You are trying to make it mean something else.

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  38. gander (90 comments) says:

    Any chance the revenue shortfall is the result of investors’ deciding there’s no imperative to crystallise gains in advance of the start of a higher tax regime, now that a left wing coalition government may be less likely?

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  39. EAD (821 comments) says:

    Alan – let’s agree to disagree with our views on the Conservatives.

    The main-stream media, un-thinking rhetoric that it is think the Conservatives somehow represent moralising “Big Government” when nothing could be further from the truth. Their 2 most publicised causes have been so grossly distorted by the MSM as to be laughable.

    Smacking ban – how can opposition to letting the Government decide how children should be disciplined be described as being big government? Their position is perfectly consistent with their philosophy of trusting people to make their own decisions as to how to bring up their Children. The Red Team, Green Team and Dark Blue agreed legal position is now that you are all would be child-abusers and that Government knows best.

    Same-Sex marriage – how can the Government deciding what the definition of what was first and foremost religious contract between a man and woman be anything but an example of Big Government knows best and spreading it’s suffocating moral blanket over more of society?

    I can’t in good conscience give my vote to the current version of progressive Labour-lite National – I want to help destroy it so they return to what they once were as do an increasing number of people I talk to who can see through the smoke and mirrors of the present lot

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  40. Alan (1,080 comments) says:

    I wasn’t thinking at all about same sex marriage or smacking. It was more their opposition to asset sales and Winstonesque opposition to overseas land purchases.

    Colin Craig wants the state to own power companies, just like Winston and Cunliffe. If that’s not big government, I don’t know what is.

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  41. burt (8,019 comments) says:

    gander

    Any chance the revenue shortfall is the result of investors’ deciding there’s no imperative to crystallise gains in advance of the start of a higher tax regime, now that a left wing coalition government may be less likely?

    Possibly the exact opposite. People are waiting for taxes to go up so they can declare their profits and pay more tax because we all love spend and bust socialist governments.

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  42. Dirty Rat (383 comments) says:

    “Employers may be hiring extra staff which reduces profitability and tax in the short-term. They may be purchasing assets which increases depreciation.”

    Really Sherlock ?

    1. Buy Purchasing Assets and increasing depreciation, that only reduces the tax liability of one party over the useful life of the asset. The other party (Thats the one that sold the asset in the first place) still has to return 100% of that sale as income. Therefore purchasing assets results in an INCREASE in Tax Revenue.

    2. In that same breath, I assume you are mistakingly thinking that Employees pay no Tax

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  43. Dirty Rat (383 comments) says:

    Burt…you are correct.

    If there is any speculation of an increase in tax, then taxpayers are more likely to spread expenses than claim 100% from D10 (if thats still around) and change their Financial Arrangements basis from Cash to Accruals

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  44. deadrightkev (332 comments) says:

    You can only increase private sector income from the sale or goods and services, or cut government spending to create genuine prosperity for New Zealanders.

    National will never have the leader with the gonads to cut government spending and National do not have the vision to embark on a systematic program of government spending cuts with corresponding tax cuts.

    Only Act and the Conservatives could be in a position to influence National however:

    As things stand with Act the party is unlikely to get anymore than two seats maximum, one being a gift seat and enough party votes to pick up one more. Act is still a toxic brand in the market, Acts campaign of chasing the Chinese vote by promoting a poor English speaking candidate with no standing in the Chinese community is fatally flawed. Act has an amateur administration setup and the party has never created an organisation. Act has great policy and a new leader with potential but they will never sell the product with the current board, management and brand.

    Craig has yet to sell his party policy to the market at large but to discount him as irrelevant flies in the face of the facts. In the main his policy is not light years away from Act policy and both leaders/parties would work well together in government. Craig is inexperienced as a politician but knows how to cut a deal. He has a slick admin team and a nationwide organisation ready to hit the streets. Craig has already succeeded in most respects in a very short time, but he does not have the luxury of a gift seat, at this point, National may well rethink this and they would be wise. I think Craig will do very well at the election.

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  45. wikiriwhis business (3,883 comments) says:

    “Yep. The Government has limited control over how much tax is paid to it by the private sector.”

    so where is IRD…… surely not favoring the wealthy

    Is that why $6 bill is missing from treasury

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