Treasury Releases Accompanying BPS and DEFU

...for the Full Budget Policy Statement
See...
http://www.treasury.govt.nz/budgetpolicy/2001/default.asp

...for the Full December Economic and Fiscal Update
See...
http://www.treasury.govt.nz/forecasts/defu/2000/default.asp

Accompanying Documents Attached Below....

- Government Policy on Pre-funding New Zealand Superannuation
- Ready Reckoner for Tax Rate and Base Changes

Government Policy on Pre-funding New Zealand Superannuation

On 2 October 2000, Cabinet agreed to pre-fund a portion of future New Zealand Superannuation expenses.

10 October 2000 Release
On 10 October the Minister of Finance released the documents on which Cabinet based its decisions on pre-funding. These documents include:

Pre-funding New Zealand Superannuation: Funding Arrangements
This paper sets out the Government's rationale for pre-funding New Zealand Superannuation and the key elements of the investment fund regime.

nzs-funding.pdf
(48 KB)
Pre-funding New Zealand Superannuation: Entitlements
This paper sets out the payments that will be covered by the Fund for New Zealand Superannuation.

nzs-entitlements.pdf (36 KB)
Pre-funding New Zealand Superannuation: Budget Implications
This paper puts pre-funding in the context of the Government's overall fiscal objectives and capital spending plans.

nzs-budget.pdf
(32 KB)
Pre-funding New Zealand Superannuation (Working Document)
This paper is a compilation of a series of Treasury reports on the details of the establishment of the Fund and its fiscal implications and affordability. It should be noted that parts of the document were originally prepared as early as January 2000, and the precise details of the policy have evolved over the intervening months. Consequently, the content of this report does not always reflect the final policy, as set out in the Cabinet papers.
nzs-wd.pdf
(473 KB)

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31 October 2000 Release
Three further documents have been released by the Treasury on 31 October. T2000/1939 and T2000/2013 are Treasury reports prepared for the Minister of Finance.

T2000/1939 - Macroeconomic Effects of the Proposal for Pre-funding New Zealand Superannuation
18 September 2000

This note examines the possible macroeconomic effects of the dedicated funding scheme proposed for pre-funding New Zealand Superannuation.

t2000-1939.pdf
(50 KB)
T2000/2013 - Pre-funding New Zealand Superannuation: Effect on Private Saving
2 October 2000

This report focuses on the potential effect of the pre-funding proposal on private saving.

t2000-2013.pdf
(67 KB)
Spreadsheet - Pre-funding New Zealand Superannuation Model
This spreadsheet calculates the contribution rate for pre-funding New Zealand Superannuation.

The spreadsheet was updated at the time of the release of the December Economic & Fiscal Update. The updated version is available under 19 December 2000 Release.

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28 November 2000 Introduction of Bill
The New Zealand Superannuation Bill was introduced into Parliament on 28 November 2000.

The Bill (including the Explanatory Note) is available here in Adobe PDF format: nzs-bill-intro.pdf (118 KB)

The Minister of Finance's related media release Legislation Offers Chance to Put Super above Politics (28 November 2000) is available at the Government Executive website.

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19 December 2000 Release
Spreadsheet - Pre-funding New Zealand Superannuation Model
This spreadsheet calculates the contribution rate for pre-funding New Zealand Superannuation. The spreadsheet was updated at the time of the release of the December Economic & Fiscal Update.

The spreadsheet contains a macro which restores the assumptions in the model to their defaults. You will need to click 'Yes' to enable macros or 'Enable Macros' when prompted on opening the file.
nzsf-model-v2.xls
(Excel 2000, 674 KB)

- Ready Reckoner for Tax Rate and Base Changes

Ready Reckoner for Tax Rate and Base Changes

Introduction

This is a ready reckoner for estimating the tax revenue changes likely to occur as a result of small changes in tax rates and thresholds. It also permits the reader to gauge the sensitivity of tax revenue forecasts to small alterations in the main economic drivers of revenue.

The estimated revenue changes depend on the size of the tax bases. This ready reckoner has been updated to incorporate the latest economic outlook presented in the 2000 December Economic and Fiscal Update and on-going development of Taxmod.[1]

This ready reckoner also includes a table of taxable income distribution which gives individuals' annual income and tax data in taxable income bands.

Up to $50,000 the data is given in one thousand dollar bands, except the "$9,000 - $10,000" income band has been broken into "$9,000 - $9,500" and "$9,500 - $10,000" income bands. This has been done to aid calculations involving the four effective tax rates, which are based on annual taxable income, presently used in the NZ personal income tax regime: 15% up to $9,500; 21% between $9,500 and $38,000; 33% between $38,000 and $60,000; 39% above $60,000.

There is also a lower statutory tax rate of 19.5%, which is the legislated tax rate applicable to annual taxable income below $38,000. The tax on annual income under $38,000 is reduced by the Low Income Rebate (LIR), which is calculated as a proportion of the annual income below $9,500. Income above this abates the LIR, until it is exhausted at $38,000. Effective tax rates determine an individual's true tax liability, after allowing for the LIR.

The final column of the taxable income distribution table shows the total amount of taxable income contributed to each band by all individuals. For example, a person with an annual taxable income of $32,750 contributes $1,000 to each of the thousand-dollar income bands up to and including "$8,000 to $9,000", $500 to each of the income bands "$9,000 to $9,500" and "$9,500 to $10,000", and $1,000 to each of the thousand-dollar income bands after that up to and including "$31,000 to $32,000". The final $750 of their annual income is contributed to the income band "$32,000 to $33,000".

This information is particularly useful in enabling readers to estimate the impact of the combined effect of changing tax rates and thresholds on tax revenue. This taxable income distribution has been updated based on the 1997/98 Statistics New Zealand Household Economic Survey, inflated to 2001/02 by Taxmod.

Major Assumptions and Caveats
The ready reckoner tables attached show the full-year revenue effects of each change. However, it is likely there would be a delay before these effects show up in tax revenue and receipts.

These estimates are subject to forecasting error and are dependent on sampled information.

The revenue estimates do not allow for second-round macroeconomic effects on growth and employment. For example, they do not make allowance for:

the short-run aggregate labour-market response to changes to the personal tax rates
changes in investment spending due to changes in the company tax rate.
These are difficult to estimate without an extensive review of the macroeconomic forecasts. As a result, any effect of tax changes on economic growth is not included in the ready reckoner.

This ready reckoner only estimates the effect on gross revenue. The overall effect on the Government’s operating balance is unlikely to be the same as these estimates.

The ready reckoner allows for direct inter-linkages between taxes at the individual and/or firm level. For example, changes in personal income taxes have a direct effect on consumption and thus on GST collections. The changes would also affect business profits and hence company tax.

Changing a single tax rate in isolation may indirectly affect tax revenue from other tax types. For example, raising personal tax rates while leaving the fringe benefit tax rates unchanged could encourage employees to elect to receive a larger portion of their compensation in non-monetary terms. This would allow them to reduce their tax liability. The levels of induced tax planning activities would depend on the magnitude of the differences in tax rates. These indirect linkages between tax types are not included in the ready reckoner.

Proposals involving large changes in tax rates or proposals involving more than one change of rate generally have different revenue effects from the estimates presented because of interaction between tax types and greater behavioural responses.

ENRReady Reckoner for Tax Rate and Base Changes
Introduction
This is a ready reckoner for estimating the tax revenue changes likely to occur as a result of small changes in tax rates and thresholds. It also permits the reader to gauge the sensitivity of tax revenue forecasts to small alterations in the main economic drivers of revenue.

The estimated revenue changes depend on the size of the tax bases. This ready reckoner has been updated to incorporate the latest economic outlook presented in the 2000 December Economic and Fiscal Update and on-going development of Taxmod.[1]

This ready reckoner also includes a table of taxable income distribution which gives individuals' annual income and tax data in taxable income bands.

Up to $50,000 the data is given in one thousand dollar bands, except the "$9,000 - $10,000" income band has been broken into "$9,000 - $9,500" and "$9,500 - $10,000" income bands. This has been done to aid calculations involving the four effective tax rates, which are based on annual taxable income, presently used in the NZ personal income tax regime: 15% up to $9,500; 21% between $9,500 and $38,000; 33% between $38,000 and $60,000; 39% above $60,000.

There is also a lower statutory tax rate of 19.5%, which is the legislated tax rate applicable to annual taxable income below $38,000. The tax on annual income under $38,000 is reduced by the Low Income Rebate (LIR), which is calculated as a proportion of the annual income below $9,500. Income above this abates the LIR, until it is exhausted at $38,000. Effective tax rates determine an individual's true tax liability, after allowing for the LIR.

The final column of the taxable income distribution table shows the total amount of taxable income contributed to each band by all individuals. For example, a person with an annual taxable income of $32,750 contributes $1,000 to each of the thousand-dollar income bands up to and including "$8,000 to $9,000", $500 to each of the income bands "$9,000 to $9,500" and "$9,500 to $10,000", and $1,000 to each of the thousand-dollar income bands after that up to and including "$31,000 to $32,000". The final $750 of their annual income is contributed to the income band "$32,000 to $33,000".

This information is particularly useful in enabling readers to estimate the impact of the combined effect of changing tax rates and thresholds on tax revenue. This taxable income distribution has been updated based on the 1997/98 Statistics New Zealand Household Economic Survey, inflated to 2001/02 by Taxmod.

Major Assumptions and Caveats
The ready reckoner tables attached show the full-year revenue effects of each change. However, it is likely there would be a delay before these effects show up in tax revenue and receipts.

These estimates are subject to forecasting error and are dependent on sampled information.

The revenue estimates do not allow for second-round macroeconomic effects on growth and employment. For example, they do not make allowance for:

the short-run aggregate labour-market response to changes to the personal tax rates
changes in investment spending due to changes in the company tax rate.
These are difficult to estimate without an extensive review of the macroeconomic forecasts. As a result, any effect of tax changes on economic growth is not included in the ready reckoner.

This ready reckoner only estimates the effect on gross revenue. The overall effect on the Government’s operating balance is unlikely to be the same as these estimates.

The ready reckoner allows for direct inter-linkages between taxes at the individual and/or firm level. For example, changes in personal income taxes have a direct effect on consumption and thus on GST collections. The changes would also affect business profits and hence company tax.

Changing a single tax rate in isolation may indirectly affect tax revenue from other tax types. For example, raising personal tax rates while leaving the fringe benefit tax rates unchanged could encourage employees to elect to receive a larger portion of their compensation in non-monetary terms. This would allow them to reduce their tax liability. The levels of induced tax planning activities would depend on the magnitude of the differences in tax rates. These indirect linkages between tax types are not included in the ready reckoner.

Proposals involving large changes in tax rates or proposals involving more than one change of rate generally have different revenue effects from the estimates presented because of interaction between tax types and greater behavioural responses.

ENDS

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