Jim Budget Commentary picIssued 22nd MAY 2015

The 2015 Budget announced on 21st May 2015 has identical priorities to the 2014 Budget.

The four priorities are:

  1. Responsibly managing finances
  2. Building a more productive and competitive economy
  3. Delivering better public services
  4. Rebuilding Christchurch

The Government reported that:

  • The economy grew 3.0% and forecasts 2.8% growth on average over the next 4 years.
  • Nominal GDP is expected to be $15b lower in total over this and the next 3 tax years.
  • Tax revenue is expected to be $4.5b lower in total over this and the next 3 years.
  • The Budget forecasts an additional 150,000 people in work by mid-2019, and the unemployment rate is expected to fall to 4.5%.

1. RESPONSIBLY MANAGING FINANCES

The Government has 5 fiscal priorities:
i.    Return to surplus this year, and maintaining surpluses.
ii.   Reduce net debt to 20% of GDP by 2020, and repay debt in dollar terms by 2017/18.
iii.  Further reducing ACC levies.
iv.  Begin to reduce income taxes from 2017.
v.   Use further fiscal headroom to reduce debt faster.

The government forecasts a $684m deficit for 2014/15, with surpluses forecast of $176m by 2015/16, $1.5b by 2016/17 and $3.6b by 2018/19.

Net debt is expected to peak at 26.3% of GDP in 2015/16 and fall thereafter.

Government operating allowances will remain unchanged at $1b for Budgets 2015 & 2016, before rising to $2.5b in 2017.

The Budget will allow $939m for new capital spending.

Government’s net assets are expected to grow faster over the next 4 years to $19b.

2. BUILDING A MORE PRODUCTIVE AND COMPETITIVE ECONOMY

Government reports that:

  • Up to $25m over 3 years to be provided to support the establishment of new, privately-led Regional Research Institutes, to support increased innovation outside of Auckland, Wellington and Christchurch.
  • Funding of $80m over 4 years to R&D growth grants. This is intended to contribute 20% of the R&D costs of innovative businesses.
  • Funding of $113m over 4 years to some tertiary education initiatives by reprioritising spending.
  • Further ACC levy rate cuts of $375m in 2016 and an additional $120m in 2017.

TAX MEASURES:

Taxing Property Gains

  • New ‘bright line’ test for the ‘Intention Test’ will mean that a residential property that is bought on or after 1 October 2015 and then sold within 2 years will be deemed to have been bought with the intention of resale and the gain will therefore be taxable.
  • The only exceptions to the ‘bright line’ test will be:
    – When the property is the seller’s main home; or
    – When the property was inherited; or
    – When the property was transferred as part of a relationship property settlement.
  • Note that the pre-existing land taxing provisions remain in force. This means a land transaction can still be taxable even if it is sold after the 2 year period. Tax advice should be obtained for any land transactions. This may even apply to the sale of a family home where this is part of a regular pattern of buying and selling homes.
  • The government will also investigate introducing a withholding tax for non-residents selling residential property.
  • Non-residents and New Zealanders buying and selling any residential property, other than their main home, will need to provide their IRD Number as part of the land transfer process.
  • Non-residents will also need to provide their tax identification number from their home country. They will also need to open a New Zealand bank account before they can get a New Zealand IRD Number.

GST and Social Housing

  • The GST Act will be amended to ensure that payments made to social housing providers are GST exempt.

IRD Audits

  • The IRD will be given a funding boost of $74m over 5 years to bolster tax compliance and enforcement, of which $29m is focussed on property investment.

Government further reports that:

  • The government will set aside a $52m capital contingency to facilitate housing development on Crown-owned land in Auckland.
  • The government will be spending $32m over 4 years to increase the number of labour inspectors and strengthen enforcement of employment law.
  • Effective from 2pm on 21 May 2015, the $1,000 KiwiSaver kick-start for new members of KiwiSaver will be removed. This will not affect existing members of KiwiSaver.
  • A new passenger-related bio-security and customs levy will be introduced at our borders.

3. DELIVERING BETTER PUBLIC SERVICES

Government intends to:

  • Require most sole parents and partners of beneficiaries to be available for part-time work when the youngest child turns 3, rather than 5. This will apply from 1 April 2016.
  • Increase financial support to low income families through Working for Families. This will apply from 1 April 2016.
  • Increase the Childcare Assistance for low income families from 1 April 2016.
  • Give more scope to write off Child Support debt of defaulting parents. The aim is to ultimately achieve greater compliance. This will apply from 1 April 2016.
  • Further fund District Health Boards to meet the costs of population growth.
  • Provide more funding to early childhood, primary and secondary school education.
  • Fund more social housing.
  • Provide extra funding to other government departments:
    –  Police and Corrections
    –  Serious Fraud Office
    –  New Zealand Defence Force
    –  SIS and GCSB
    – Department of Conservation

4. REBUILDING CHRISTCHURCH

The government provides additional operational funding of $108m over 4 years to ensure the various projects remain on track.

 

“Our challenge is to secure for our economy and for our communities the hard-won gains this country has made through to 2020 and beyond.”  Hon Bill English, Minister of Finance.

Should any of the matters raised be of concern to you please contact your UHY Haines Norton Director or Jim Martin, Head of Tax for UHY Haines Norton, at jmartin@uhyhn.co.nz or phone (09) 839-0241.