Tax take up more than 10% as company profits and PAYE receipts jump

Wednesday, 5 October 2022

The amount of money New Zealanders pay in tax soared by more than 10% in the year to the end of June due to the strong employment market, inflation, and big jumps in company tax receipts.

The increase in company tax shown in accounts published by the Government on Wednesday indicates that businesses have become more profitable, even as many firms fret over inflation, skills shortages and the uncertain economic environment.

The total tax take was up 10.8% at just under $108 billion according to the Crown’s accounts published by the Treasury, which was more than double the 4.6% rise forecast in the May Budget.

The rising tax take and lower-than-expected expenses helped the Government’s deficit for the year come in below its Budget forecast, even as the Crown’s debt as a proportion of GDP moved in the opposite direction due to poor returns from equity markets which reduced the value of the NZ Super fund.

**READ MORE:

* NZ company profits on track to jump 60% over 2 years

* Big firms' profits jump as households face bigger bills

* Are our tech companies making any money?

**

Company tax receipts for the year to the end of June leapt by $4.1b or more than a quarter to $19.9b.

That was partly but not entirely due to an increase in profits the previous year feeding through into higher provisional tax payments.

Finance Minister Grant Robertson said that “while there are some ‘mood surveys’ that say one thing about New Zealand’s corporate sector, you can see from here that there was significant profits within our corporate sector evidenced by the corporate tax return to IRD”.

Tax receipts from PAYE deductions on workers’ pay rose by $4.3b or just over 11% due to higher pay and more people being in employment.

But Robertson indicated the Government would not respond by raising income tax thresholds, at least before the election.

“We have been clear we are not making major tax changes this term,” he said.

Company tax revenues were up from $15.8b in the year to June last year and up more than 60% on the year before that.

They were also more than 30% up on the 2019 financial year, which was another good one for company profits.

As the company tax rate of 28% has not changed through the period, the higher company tax take should reflect an increase in taxable profits themselves.

Consultant KPMG has forecast annualised bank profits are on track to top $20 billion a year as mortgage rates rise.

The combined profits of the majority state-owned power companies Genesis, Meridian and Mercury more than doubled to $1.35 billion in the year to the end of June, up from $601m last year.

Speaking last week ahead of the release of the Crown accounts, Auckland Business Chamber chief executive Simon Bridges said there was a mixed picture across businesses.

It was “absolutely true” that large corporates including banks had been enjoying higher profits, he said.

“Whilst many of us were predicting doom at the start of the pandemic, because of Reserve Bank policies and government stimulus, actually there has been strong profitability.

“I query that though, when it comes to the small and medium-sized enterprise market,” he said.

Bridges also expected this year would mark the high tide for business profitability, which he now expected to deteriorate.

“What the latest business sentiment surveys are showing really clearly is that there is more struggle coming on as a result of the inflation picture,” he said.

“The pressure on profitability will be felt ‘post’ these accounts.”

Small businesses in Australia with an annual turnover of less than A$50m (NZ$57m) a year pay a lower rate of company tax than larger business.

Bridges said it was “an interesting point” whether New Zealand should consider following suit.