Issued 26th May 2017
The 2017 Budget announced on 25 May 2017 is a balanced budget with a few tax concessions. I.e., changes to the personal marginal tax bandings and increases in the Working for Families entitlements. The budget also makes provision to provide resilience against any future shocks to the economy.
The Government reported that:
The budget is about delivering more public services, infrastructure, resilience and incomes to New Zealanders, i.e. creating a platform to deliver greater prosperity for New Zealanders.
- Positive growth in all but one quarter of the last six years.
- NZ is currently growing faster than the USA, UK, Australia, the EU, Japan and Canada.
- The NZ economy is 14% larger than it was 5 years ago.
- We, as a nation, have diversified.
- We’ve grown in tourism, education and business services.
- We sell more apples, wine, kiwifruit and other high-value foods.
- Growth in the technology sector.
- Over 200,000 new jobs created over the last 3 years.
- Adult employment rate is the highest ever, with 67.1% of everyone over the age of 15 being employed.
- The amount the country owes the world has dropped from 82% of GDP in 2008 to 60% today.
- Rising export values, high levels of house building and commercial construction, and low interest rates, means the medium-term economic outlook is positive.
- Employment is forecast to grow strongly and unemployment is expected to decline steadily.
- Nominal GDP is expected to be a cumulative $23.9 billion higher over the next 5 years than was previously expected.
- Treasury’s forecasted increases in tax revenues are expected to grow slightly more than previously expected.
- The Government’s work to halt multi-national tax avoidance is forecast to bring in $250 million of additional revenue over the forecast period.
- As a result, the government will increase the operating allowance in the budget to $1.8 billion a year. This is $300 million more than previously allocated.
- Next year’s operating allowance will be $1.7 billion, with annual 2% upward adjustments thereafter.
- Net debt peaked at 25.5% of GDP and is projected to fall to 19.3% of GDP by 2020/21. NZ Superannuation Fund contributions are expected to resume in that year.
KEEPING THE ECONOMY GROWING
The Government says, “one of the biggest risks to growth is the more inward-looking isolationist economic policies being pushed in some parts of the world, and by some politicians here at home.”
- The Government’s plan for growth is “sensible conservative fiscal policy, strong orthodox monetary policy, and an ongoing programme of microeconomic reform that enhances the competitiveness and confidence of Kiwi businesses.”
- The programme for microeconomic reform is called the ‘Business Growth Agenda’.
- The Budget invests $1 billion over 4 years towards a plan to encourage growth.
- The Budget allocates $373 million in the second round of the Innovation New Zealand Programme. This is a series of science, R&D and skills initiatives.
- Funding includes $82 million for the science fund – the Endeavour Fund; and $132 million for Tertiary Education; and $75 million for the Callaghan Innovation’s R&D grants.
- The Budget allocates $134 million over 4 years to advance the NZ Trade Agenda 2030, including new embassies in Dublin and Colombo.
- Funding of $304 million towards the ongoing development of our screen sector; $146 million of new funding to grow our tourism infrastructure.
- Funding of $93 million in new Maori Development initiatives; including $10 million to develop Maori tourism; and $17 million for Maori housing initiatives. The funding will allow for an extra 2,500 families to access Whanau Ora, and revitalisation of Te Reo and Maori culture.
BETTER PUBLIC SERVICES
- Allocating $7 billion over 4 years to sustain and expand public services in health, education, law and order, and social development.
- Including $59 million on ambulance services, across health and ACC, so that all emergency road ambulance call outs are double-crewed by 2021.
- Extra funding of $60 million will be provided to Pharmac to access new medicines.
- The Health budget includes $1.54 billion for the pay equity settlement of 55,000 care and support workers.
- Additional Operating expenditure of $1.1 billion over 4 years for schools and early childhood centres.
- New operating expenditure of $1.2 billion over 4 years for law and order. This includes funding 10% more police staff to reduce crime, as well as increasing investment in justice, courts and corrections services.
- The Budget includes $64 million to help people move off benefits and into work.
- Funding of $37 million to improve the safety of family violence victims.
- Funding of $185 million to further expand social housing services.
- Funding of $424 million for the new Ministry for Vulnerable Children.
- Funding over 4 years of $224 million for mental health services.
- The Productivity Commission has been asked to conduct an investigation into measuring and improving the productivity of core public services.
Allocating $4 billion in new capital funding across Education, Health, Defence, Justice, Housing, Primary Sector and Transport portfolios.
- Including a further $392 million for new schools and classrooms.
- Funding of $150 million in additional capital for the health sector.
- Funding of $576 million for Defence Force upgrades.
- Funding of $763 million on new prison capacity.
- Funding of $63 million for Crown Irrigation for new water storage.
- Funding of $100 million for the Crown Land Programme to free up more government land for housing.
- New funding of $1.8 billion for the Transport portfolio, for KiwiRail, the first stage in Auckland’s City Rail Link, reinstatement of State Highway 1 north and south of Kaikoura, upgrades for Wellington’s metro rail network.
- Housing New Zealand will invest $2.2 billion in the Auckland Housing Programme. This will contribute 34,000 new houses over the next 10 years.
The Government defines Resilience as the ability to provide support when disaster strikes or a big economic shock happens. The government highlights the importance of having the financial capacity to respond.
The GFC and the Canterbury earthquakes required the government to run up debts of 20% of GDP.
- The Government announced a new medium term target of reducing net debt to between 10% and 15% of GDP by 2025.
- Then once stabilized at that level, to use any extra fiscal room to further invest in public services and infrastructure, or further tax changes.
- The Earthquake Commission and the National Disaster Fund have so far paid out $9.5 billion in claims in relation to the Canterbury earthquakes. A further $550 million in claims is expected to be paid out for the Kaikoura earthquakes.
- These claims are expected to exhaust the National Disaster Fund.
- Therefore from 1 November 2017, the EQC premium rate will increase from 15 cents per $100 in cover to 20 cents per $100 in cover.
TAX AND FAMILY INCOMES PACKAGE
The Government says it is now 7 years since the tax bandings were last altered. Over that time the average wage has risen from $49,500 to $58,900.
- This has resulted in fiscal drag with middle income earners reaching the 30% tax band at just $48,000.
- A number of low income people with young families are struggling to get ahead.
- The tax system is becoming too complex for people to work out their entitlements under Working for Families.
From 1st April 2018 the following changes will take effect:
- The first $14,000 of income threshold (taxed at 10.5%) will be widened to the first $22,000 of income.
- The second income threshold, currently $14,001 to $48,000 (taxed at 17.5%), will be changed to $22,001 to $52,000.
- These changes provide a tax reduction of $10.77 per week for anyone earning $22,000 per year, increasing to $20.38 per week for anyone earning more than $52,000 per year.
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- The Independent Earner Tax Credit will be removed.
- Family Tax Credits entitlements will be changed:
– The Family Tax Credit rates for young children will be increased to match the entitlements for children aged 16 to 18 years of age.
– The Family Tax Credit rates for the first child aged under 16 will increase by $9.25 per week, while rates for each subsequent child increase by either $17.75 or $26.81 per week, depending on the age of the child.
– The Family Tax Credit will abate at 25c (currently 22.5c) in the dollar above an income of $35,000 (currently $36,350).
- The maximum Accommodation Supplement rates for a 2 person household will increase between $25 and $75 a week, while maximum rates for larger households will increase between $40 and $80 per week.
- The Accommodation Benefit paid to eligible Student Allowance recipients experiencing housing stress, will increase by up to $20 per week.
- Superannuitants will benefit from the link between NZ Superannuation and after-tax wages.
- The Government has established a transitional fund of $2 million over the next 4 years to assist anyone significantly impacted by the changes to the tax and family income package.
‘Feasibility expenditure’ – sometimes known as ‘black hole’ expenditure – will become tax deductible under proposals released in the Budget. Under current rules, some types of expenditure are not deductible when incurred, nor as depreciation in future years, hence the term ‘black hole’ expenditure. The new proposals would allow such costs to be deductible when no asset is created, or deductible in the future if the project is abandoned. The Government is seeking feedback from the public on these proposals.
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 firstname.lastname@example.org or phone (09) 839-0241.