Finely balanced tax package depends on growth dividend

Personal and company tax cuts announced in the Budget today will cost more than the GST increase and clampdowns on tax dodges until 2013/14, and will only ever be fiscally neutral as long as the economy grows as strongly as the Treasury forecasts.

This Budget is the first occasion where a government has included estimates of the impact of a tax package on economic growth, which it expects to growt from $5 million in the current financial year to $435 million by 2013/14, when the tax package is first estimated to collect more than is given away in today's Budget.

The forecasts see New Zealand bouncing back from a 0.3% economic contraction in the March 2010 year to 3.2% Gross Domestic Product growth this year, and around 3% for the following three years covered by the Budget's forecast horizon.

The Budget assumes the tax package is adding 0.4% to economic output by 2013/14, and 0.9% by 2017.

Also crucial to achieving a fiscally balanced tax package over the next four years will be the success of the Inland Revenue Department in cracking down on tax avoidance and evasion, including in the "black" economy where no tax is paid.

Additional funding for IRD is forecast to produce an additional $210 million a year in taxes, based on its success rate of a five-to-one payback from spending on tax investigations.

The biggest single boosts to revenue will be the GST change, which Treasury forecasts will be worth an additional $3.16 billion a year by 2013/14, while changes to depreciation of buildings are expected to pull in an additional $1.05 billion by then.

Changes to "thin capitalisation" rules that will ensure foreign companies pay more tax on New Zealand income in this country are estimated to be worth $200 million a year.

More Budget coverage:

Recovery gives NZ tailwind to rebalance economy, cut taxes

Biggest tax package in a generation builds on lessons of global crisis

Property depreciation write-offs: here today, gone tomorrow

Government closes loophole and aligns tax rates for LAQCs

Government cuts tax on savings vehicles to 28%

Indexation loss tightens screws on Working for Families

Businesswire.co.nz

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