18 October 2007

OECD report reflects one-off accounting change

A report on tax to GDP ratio in OECD countries in 2005 fails to reflect the full picture on tax in New Zealand, Finance Minister Michael Cullen said today.

The OECD 2005 revenue statistics show a slight increase in New Zealand’s tax to GDP ratio. The statistics reflect a major one-off accounting change and do not take into account the billions of dollars in tax relief that are being delivered through Working for Families.

“Half of the apparent increase in the 2005 ratio has been created by a one-off accounting change,” Michael Cullen said. “Without the change, New Zealand would be roughly in line with the OECD average.

“The accounting change related to the time at which provisional tax is recognised as revenue. The change resulted in a $1.8 billion increase in provisional tax revenue in 2005/06, as revenue in the transition year captured more than just the normal 12 months of provisional tax.

“The initial evidence for 2006 shows a reduction in New Zealand’s ratio of more than one full percentage point, reflecting again the impact of the one-off accounting change. The figures used in the report also include local government revenue, accounting for around two percentage points of the total.

“We also know that the report does not take into account the billions of dollars of tax relief that are being delivered through the Working for Families programme.

“I have been clear that personal tax issues are being considered in the context of the 2008 Budget. As this discussion continues, New Zealanders need to consider whether or not revenue reductions should unduly benefit those on higher incomes at the expense of working families and if they want tax cuts implemented in a way that leads to higher inflation.

“The Labour-led government thinks the answer to both questions is ‘no’.”

ENDS

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