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High octane tax take, highly dependent on growth

24 May 2012
News Release

High octane tax take, highly dependent on growth

The forecast turnaround in the state of the nation’s accounts is highly dependent on bullish growth forecasts between now and 2016 say PwC. The other major contributor is rigorous control over crown spending.

“We are surprised at the 29% increase in tax and GST forecast over the next four years” say PwC Chairman Mr John Shewan. “This is highly dependent on growth projections averaging 3% over this period.”

Clearly, the Christchurch rebuild will have a significant impact on growth. It is sobering to note though that New Zealand has not managed average annual growth rates at these levels since the early 2000s, when the domestic and global economic climates were radically different.

“The tax changes to limit the extent of deductions allowable against income from renting holiday homes does not go as far as expected,” says Mr Shewan. “It would have been reasonable to limit deductions to the actual days a property is rented but the Government has chosen not to go this far.”

The Budget reflects impressive constraint on Government spending over the next four years. This constraint is in both core spending on departments and on transfer payments such as unemployment and domestic purpose benefits.

The stand-out exception to the constraint framework is superannuation. Superannuation payments are forecast to increase by 29% over the next four years relative to an increase of just 1% in other areas.

“The forecast hike in superannuation costs demonstrates the impact of the aging population,” adds Mr Shewan. “This is an elephant that will have to be addressed if we are to avoid inevitable hikes in taxes in the next few years.”

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