NZ corporate tax take will beat expectations this year

BUSINESSDESK: New Zealand's corporate tax-take is set to beat expectations this year as the government reaps more from Portfolio Investment Entities than anticipated, though it faces mounting insurance liabilities from its Accident Compensation Corporation scheme.

The Crown took in $50.54 billion in tax in the 11 months ended May 31, beating the Treasury's forecast $49.87 billion and helping lead to a smaller operating deficit before gains and losses of $5.91 billion than the $7.04 billion forecast.

Core spending was 0.7% below forecast at $61.97 billion.

The bigger revenue stream came from the government's corporate tax base beating forecasts by 5.1%, with net terminal tax assessments and PIE tax $200 million ahead of expectations.

"This is encouraging, but the global environment remains uncertain, leading to a number of fluctuations in the tax take from month to month," Finance Minister Bill English said.

"This month’s accounts continue to be better than forecast, due to ongoing spending discipline and better than expected GST and corporate results."

Still, the Crown's operating deficit was 8.1% worse than anticipated at $10.94 billion, with ACC actuarial losses twice expectations at $3.35 billion, "due to a decrease in the discount rate used to calculate the present value of expected claims payments". 

That takes ACC's insurance liability to $31.23 billion, 5.7% worse than expected.

Last month, ACC Minister Judith Collins announced plans to focus on rebuilding the public confidence in the accident insurer and transition away from its clampdown on approving claims.

The shift came after a privacy breach scandal enveloped the agency and forced a boardroom clean-out as well as the resignation of former ACC Minister Nick Smith from Cabinet.

The government's operating balance is set to deteriorate by a further $1.8 billion after the government's restructure of KiwiRail, though because the announcement came after the balance date it hasn't been accounted for in the latest accounts.

Before the KiwiRail restructure, the Treasury forecast a full-year operating deficit of $10.64 billion.

The government's net debt was $987 million less than expected at $49.65 billion, or 24.6% of gross domestic product, due to a smaller cash deficit as at May 31.

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I take no joy from this news. This increase might save the governments bacon from its gross and negligent misspending and I would far rather corporate profits were retained in far safer hands for further investment thus showing the world this country is business friendly.

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Why no joy. Corporate tax tax up means that corporate taxable profits are up. That is a good thing.

And NZ corporate tax rates are low by international comparison, at least with those that haven't taken part in the race to the bottom.

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One dramatic and forward thinking move would be for NZ to reduce company tax to say 15%. Similar to Singapore, Thailand, Malaysia, Hongkong.
We tend to compare ourselves to OECD countries when we should compare to other dynamic economies that are no part of the GFC.

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