BNZ predicts company tax revenue hit

Finance Minister Grant Robertson has already hinted that economic forecasts to be released in next week’s Budget will be less rosy than those published in December.

But Bank of New Zealand research head Stephen Toplis says it not yet clear ‘‘what we have lost and why’’, or whether the Government is looking at a small miss.

The Treasury predicted in its December Half Year Economic and Fiscal Update that the Government’s accounts would move into black in the year to June 2024, with a $2.1 billion surplus.

Robertson admitted last week that the new forecasts – which will have been drafted but not yet made public – would not see a return to surplus until the following year. That is despite the fiscal deficit for the nine months to the end of March being $4.1b lower than the Treasury predicted in December.

There are two possible explanations for the disappearing billions.

The Government could be planning to shell out a lot more money in new spending over the next few years than the Treasury anticipated late last year.

Or the Treasury may be expecting lower tax revenues and perhaps higher welfare payments, because of a significant deterioration in the economic outlook.

It could be a combination of both: higher than previously forecast spending and lower than previously expected tax revenues.

But Toplis noted that, in December, Robertson had already been signalling $6b in extra spending in the Budget for next year, in part to write off the deficits that have built up within the country’s district health boards to clear the decks for their abolition in July.

He speculated that the Treasury might now be forecasting much lower company tax revenues.

‘‘Given we know ‘corporate New Zealand’ is under substantial pressure from rising input costs, it wouldn’t be a surprise if some of the expected shortfall in revenue came through that.’’

The Treasury might also be expecting a drop in construction and other demand to eat into GST receipts, he said.

Infometrics principal economist Brad Olsen said he would be bemused if the Government thought it was going to have to pay out higher welfare benefits.

‘‘The labour market looks fairly tight and it is hard to see that collapsing around our ears. Realistically, it is probably a reduction on the revenue side off the back of house prices falling, interest rates rising and higher inflation.’’

Olsen said it was important to remember that through most stages of the Covid-19 pandemic, the Treasury had undercooked government revenues and the strength of the economy.

‘‘So I think there was a need, quite rightly, to bake in some more of that support.’’