Q. What is the difference between the terms ‘GST receipts’ and ‘GST revenue’?
A. ‘GST receipts’ are a cash measure, which represent the GST paid to the Crown. ‘GST revenue’ measures GST that is due for a particular period, regardless of whether or not the GST has actually been paid.
Q. How is GST revenue estimated?
A. Most taxpayers do not file their GST returns during the current month (i.e. February), and IRD therefore calculates GST revenue based on the previous month for which this information is available e.g. IRD calculates GST revenue for February 08 based on a taxpayer’s GST returns for January if they've been filed, or for December if that's the latest information.
Q. What are the drivers behind the GST revenue variance of $431m relative to forecast?
A. IRD’s view is that the variance has been influenced by a change to the due date for filing GST returns to IRD. In April 2007, the date for filing GST was brought forward from month end to the 28th.
Bringing the due date for filing forward has meant that the February GST revenue was influenced more by January GST returns than had been forecast. January expenditure generally generates low GST (e.g. spending over summer holidays is relatively low, compared to pre-Christmas spending) and that is now being reflected in the lower than forecast GST revenue for February.
This was an unforeseen consequence of bringing the filing date forward, hence was not factored into the original forecasts for February. The negative variance is expected to reverse out over the coming months.
Q. The earlier filing date was introduced in April 2007 – how come we only see this issue now?
A. The effect of this has been heightened in February because the estimate is sensitive to the mix of GST returns available for the December and January period. Typically December has high levels of GST activity (Christmas shopping) while January has relatively low GST activity.
With more January returns now available from bringing the GST due date forward, the estimate draws more heavily on January data than previously. In most months this would not be noticeable, but the effect of changing due dates is visible in February’s results due to the difference between GST activity in December and January.
Q. Does this indicate a major downturn in spending or an ailing economy?
A. No. Both GST revenue and GST receipts are 5% higher than the same period last year.
Recent economic indicators do show that domestic spending may be slightly lower than was forecast in the Treasury’s 2007 Half-Year Economic and Fiscal Update (HYEFU). This is consistent with the GST receipts being slightly below forecast.
Q. Is this connected to last month's error at IRD?
A. No, this is completely different. The error in January was around the estimation of provisional income tax which is a manual process. The GST estimation process has produced reliable data for many years. It is entirely automatic and is not vulnerable to the type of error that occurred in January.
Q. Is there a precedent for this kind of variance?
A. It is not uncommon to have variances between revenue and receipts or to have variances between revenue forecasts and actual results. However, the size of the variance in February is unusual.
Q. When/How will this anomaly be sorted out?
A. Most February GST returns are filed through March and April so the variance arising out of the February revenue estimate is expected to reverse over the coming months.