Budget Commentary 2016

Jim Budget Commentary picIssued 27th May 2016

The 2016 Budget announced on 26 May 2016 is primarily an Operating Expenditure and Capital Spend budget. Only a few measures directly impact on Government Revenues, i.e. increases in Excise on tobacco and increases in the Fire Service Levies paid by organisations.

The budget also includes some business-friendly measures which reduce penalties and interest charges on late tax payments.

The Government reported that:

The books show rising surpluses and a fall in debt.

Forecast growth is at around 3% on average over the next few years.

There is an expectation of more jobs and higher incomes.

Budget 2016 invests in a growing economy, particularly in four significant measures:

  1. Innovation NZ Package – $761.0m on growing our science system, producing the skills New Zealand needs and encouraging innovation and investment in regional New Zealand.
  2. Infrastructure Programme – $2.1b on transport, schools and delivery of a modern flexible tax system.
  3. Social Investment Package – $652.0m to provide more support to vulnerable New Zealanders.
  4. The Health Sector – $2.2b over four years to ensure access to high-quality healthcare.

ECONOMIC OVERVIEW

  • Forecasting real GDP of around 2.9% over the coming year and 2.8% on average over the five years to June 2020.
  • Over 200,000 more people in work than three years ago.
  • Extra 170,000 new jobs expected by 2020.
  • By 2020 the unemployment rate is expected to drop to 4.6% and the average wage forecast is at $63,000 pa.
  • The strong population growth is both an indicator of and a contributor to New Zealand’s economic performance.
  • This is the first time in a generation when we have a net annual movement of people into New Zealand from Australia.
  • Consumer spending and services exports are two key factors driving growth.
  • Growth is also due to a large pipeline of construction projects and low interest rates, stimulating investment.
  • The dairy sector is finishing another season with depressed prices. Despite this, New Zealand is benefiting from an increasingly diversified economy.
  • Total exports increased by almost $2.0b last year. Tourism, beef, Information and Communications Technology (ICT), wine and much of the manufacturing sector is performing well.
  • Overall GDP is expected to be $17.0b higher over the five years to June 2020, compared to the half year update. This has resulted in a higher than expected tax revenue.

MANAGING GOVERNMENT FINANCES

  • The surplus target helped turn the government books around. They will now focus on shifting more to debt repayment.
  • Fiscal priorities:
    – Maintaining rising Operating surpluses.
    – Reduce net debt to around 20% of GDP in 2020.
    – Begin to reduce income taxes, if economic and fiscal conditions allow.
    – Then reduce debt faster.
  • Government expenditure falls to 29.7% of GDP this year and stays under 30% thereafter.
  • Cash surpluses forecast from 2018/19, then start paying debt down.
  • Net debt forecast to peak at 25.6% of GDP next year and fall to 19.3% in 2020/21.
  • This means NZ Super Fund contributions are expected to resume in 2020/21.
  • Higher than expected population growth has caused a change in spending pressures:
    – Therefore $600.0m earmarked for 2017 has been brought forward.
    – This means Operating Spending in Budget 2016 of $1.6b pa on average.
    – A further $400.0m pa earmarked for 2017 has been used to reduce debt.
    – Extra capital spend (infrastructure and public assets) is set at $1.4m.
    – However coupled with reprioritising the Crown Balance Sheet, the new Capital spend in 2016 is $2.6b.
    – This means the changes reduce new capital spending by around $1.2b over the next 5 years.

BUILDING A PRODUCTIVE AND COMPETITIVE ECONOMY

Then government says innovation is critical to national prosperity. Business investment has increased from $31.0b in 2010 to $40.0b last year. This is expected to grow to $50.0b by 2020.

The Budget includes measures to support business and regional innovation:

  • $761.0m Innovation NZ Package encourages entrepreneurship and skills. There are 3 parts:
    – Science and innovation will increase by $411.0m over 4 years.
    – $257.0m more on tertiary education and apprenticeship programmes (science, engineering and agriculture).
    – $94.0m support regional economic development.

TAX PACKAGE OF $187.0m

Previously-announced incentives to encourage tax compliance:

  • Provisional tax reforms.
  • Use of Money Interest (UOMI) to be eliminated or reduced for many taxpayers.
  • Contractors will be able to choose a withholding tax rate that suits their circumstances.
  • The ongoing 1% monthly late payments penalty will be scrapped from 1 April 2017 for new tax debt.
  • Immediate late payments penalties and ongoing interest charges on debt will continue.
  • Legislation to be introduced to increase the amount of tax compliance information shared between treaty partners in an effort to combat tax base erosion and profit shifting (BEPS) carried out by multinational companies.

TAX SYSTEM

  • $857.0m for the IRD’s new Tax Administration System.

OTHER INFRASTRUCTURE

  • $115.0m for roading in Gisborne, Marlborough and Taranaki.
  • $190.0m for KiwiRail’s rail network.
  • $883.0m for nine new schools and 480 new classrooms.

HOUSING AND LAND AVAILABILITY

  • Funding to free up more land and increase housing supply in Auckland.
  • $100.0m boost for housing developments on surplus Crown land.
  • RMA reforms: the government will soon issue a National Policy Statement on Urban Development.
  • Extra funding to improve access to social housing.
  • $200.0m over four years for at least 750 more places for people with the most pressing housing needs.
  • $41.0m to support 3000 emergency housing places and a new Emergency Housing Special Needs Grant.

TOURISM

  • $45.0m over four years to support Tourism.
    – Help communities with small-scale infrastructure projects, e.g. restrooms and carparks to deal with the growing numbers of tourists.
    – Upgrading and extending the New Zealand Cycle Trail.

ENVIRONMENT

  • Phase out the temporary subsidy in the Emissions Trading Scheme.
  • Businesses are currently able to pay one Emissions Unit for every two tonnes of their pollution they emit. This will be phased out and businesses will instead move towards paying the market price for their emissions.
  • Clean up rivers and lakes over the next 10 years.
  • Funding for the Battle for Our Birds programme.
  • Tackle bovine tuberculosis.
  • Control of wilding pines.

PUBLIC SERVICES

Focus on getting people off benefits and into work.

  • Extra $652.0m over four years on a wide-ranging Social Investment Package.
  • $16.0m on Health in the coming year.
  • $2.2b over the next four years for new health initiatives.

EXCISE DUTY

  • Tobacco excise duty will rise by 10% on the 1st of January each year for the next four years.

EDUCATION

  • $11.0b in 2016/17 on early childhood, primary and secondary education.

JUSTICE, POLICE AND CORRECTIONS

  • $837.0m over the next four years plus $56.0m in 2015/16.

FIRE SERVICE

  • $303.0m over four years, partially funded by a proposed increase in the fire levy from 2017/18.

CIVIL DEFENCE

  • $6.0m over four years.

DEFENCE FORCE

  • $301.0m new funding over four years.

THE ARTS

  • $12.0m new funding over four years.

SPORT

  • $16.0m over four years (preparation for Tokyo Olympics in 2020).

SUPER GOLD CARD SCHEME

  • $41.0m additional funding.

CHRISTCHURCH REGENERATION

  • $3.9b of public sector projects are completed or under construction.
  • Almost $800.0m of more projects forecast to begin in the next six months.

 

“The Government takes a long-term view of its stewardship.  We are shaping policy around a 20 to 30-year view of how we can improve the lives of New Zealanders. 

Budget 2016 does that by making positive long-term choices that will further strengthen our economy and our communities into the future.”  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.

2017-12-20T11:05:57+00:00May 27th, 2016|General|

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