Government and Fiscal Policy

Tax revenue up, but not by as much as Treasury would like

Thursday May 03, 2012 Dr Adrian Slack

Treasury regularly publishes data on the monthly tax take – the tax “outturn” data.  These publications are usually released about six weeks after the end of the month. It is some of the earliest data available on how the economy is tracking. The data are reported for both “receipts” (cash that has been received by the collecting agency) and “revenue” (tax that is due, but which may not have actually been paid yet). The latter is an accrual measure, and is the most useful for gauging activity.

 

In Treasury’s latest release, total tax revenue was $39.8 billion for the eight months to February 2012.  This was $1.53 billion (3.8%) greater than the same period last year.  The chart below highlights the shares of tax directly paid by individuals and corporations, and gathered through GST, duties and other indirect taxes. The top three categories accounted for almost 90 percent of the tax revenue.
However, total revenue came in below ($717 million, 1.8%) below Treasury’s PREFU forecasts made in October 2011. The main categories where revenue came in below forecast were GST (-$452 million) and PAYE (-$141 million). Alcohol and fuel duties were below forecast (-$97 million) but higher than expected tobacco duties ($42 million) provides some offset to this. Customs duty was $18 million above forecast.
The higher level of customs duty may reflect increasing on-line shopping as consumer import goods from overseas. This may result in a net fiscal loss for the government as consumers import goods directly rather than purchasing them from New Zealand retailers. GST is not payable on small consignments, that is, where the duty plus GST payable is less than $60. This typically means the consignment has a landed value of less than $400.  For such purchases, consumers would essentially be buying GST (and duty) free.
Customs duty is applied to a wide range of goods, but not all, at a rate of between 5 and 10 percent; products such as alcohol and tobacco attract additional duties. For example, DVDs have a zero rate, perfume and jewelry 5 percent and clothing or footwear 10 percent. So the saving to a consumer of buying directly from overseas rather than from domestic retailers could be between 5 to 15 percent. The net loss to the government may be offset somewhat if the law of demand holds. That is, consumers may buy a greater quantity of goods, to which duty may be applied, than they would otherwise have at the higher GST-inclusive prices.

Treasury regularly publishes data on the monthly tax take – the tax “outturn” data.  These publications are usually released about six weeks after the end of the month. It is some of the earliest data available on how the economy is tracking. The data are reported for both “receipts” (cash that has been received by the collecting agency) and “revenue” (tax that is due, but which may not have actually been paid yet). The latter is an accrual measure, and is the most useful for gauging activity.

 

In Treasury’s latest release, total tax revenue was $39.8 billion for the eight months to February 2012.  This was $1.53 billion (3.8%) greater than the same period last year.  The chart below highlights the shares of tax directly paid by individuals and corporations, and gathered through GST, duties and other indirect taxes. The top three categories accounted for almost 90 percent of the tax revenue.

 

Figure 1: 2011/12 Tax revenue, year to date (to February 2012)

However, total revenue came in below ($717 million, 1.8%) below Treasury’s PREFU forecasts made in October 2011. The main categories where revenue came in below forecast were GST (-$452 million) and PAYE (-$141 million). Alcohol and fuel duties were below forecast (-$97 million) but higher than expected tobacco duties ($42 million) provides some offset to this. Customs duty was $18 million above forecast.

 

The higher level of customs duty may reflect increasing on-line shopping as consumer import goods from overseas. This may result in a net fiscal loss for the government as consumers import goods directly rather than purchasing them from New Zealand retailers. GST is not payable on small consignments, that is, where the duty plus GST payable is less than $60. This typically means the consignment has a landed value of less than $400.  For such purchases, consumers would essentially be buying GST (and duty) free.

 

Customs duty is applied to a wide range of goods, but not all, at a rate of between 5 and 10 percent; products such as alcohol and tobacco attract additional duties. For example, DVDs have a zero rate, perfume and jewelry 5 percent and clothing or footwear 10 percent. So the saving to a consumer of buying directly from overseas rather than from domestic retailers could be between 5 to 15 percent. The net loss to the government may be offset somewhat if the law of demand holds. That is, consumers may buy a greater quantity of goods, to which duty may be applied, than they would otherwise have at the higher GST-inclusive prices.

 

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