sign up log in
Want to go ad-free? Find out how, here.

Te wiki o te tāke Budget Special – no big tax surprise but Inland Revenue gets some extra funding

Public Policy / analysis
Te wiki o te tāke Budget Special – no big tax surprise but Inland Revenue gets some extra funding
budget3

By Terry Baucher*

So, much as expected, no headline tax surprises again. We will have to wait until next year for any changes to tax thresholds Interestingly, the matter of increasing thresholds was not raised with the Finance Minister during the Budget Lockup, although he addressed that in part by arguing the cost of living payment was better targeted than a general across the board threshold adjustment.   

The ongoing (but not quantified) effect of fiscal drag means tax revenue for the year ending 30th June 2022 is expected to cross the $100 billion mark for the first time to a total of $103.8 billion. The main growth is from PAYE, forecast to rise by $3.7 billion to just under $42 billion and corporate income tax projected at $16.7 billion up nearly $2 billion. (That includes an estimated $322 million from the New Zealand Superannuation Fund, down an eye-watering $1.8 billion from 2021 – illustrating the impact of the recent turbulence in financial markets, thanks Vladimir). GST receipts are also up over $1.2 billion from June 2021 to an expected $25.7 billion.  

The big announcement was the cost of living payment of $350 in three monthly instalments starting 1 August (about $27 per week). The payment will be available to individuals who earned less than $70,000 per annum in the past tax year, and not eligible to receive the Winter Energy Payment – approximately 2.1 million New Zealanders.  It will cost an estimated $814 million.

Eligibility for this payment will be determined by a person’s income for the March 2022 year. Most of those eligible will have their income determined by Inland Revenue’s auto-assessment process which is now underway. The payment is therefore an incentive for eligible taxpayers who have to file a tax return to do so as soon as possible. Not entirely sure my tax agent colleagues will welcome that development.  

The temporary reductions in Fuel Excise Duty and Road User Charges will be extended for a further two months at an estimated cost of $235 million.  Half-price public transport is also extended for a further two months and will be make permanent for 1 million Community Services Cardholders which seems a good initative. Extending half-price public transport should be a measure which helps in reducing emissions. 

Small businesses are an important part of the economy, so the proposed Business Growth Fund is an interesting move. The Crown will initially invest $100 million alongside private banks. Through the Fund the Crown will take a minority interest in SMEs where equity finance would be more appropriate than debt finance.  

The intention is for the BGF to be an active investor providing growth capital, but it would not take a majority position although it would have a seat on the board. It’s an interesting development based on similar initiatives in the UK, Ireland, Canada and Australia so we will watch with interest.  Personally, I think a permanent iteration of the Small Business Cashflow Scheme would be a good long term initiative.

There’s a small but welcome change to Child Support rules with the scrapping of the rule under which the Crown retains the Child Support payments of beneficiary sole parents. From 1 July 2023 those Child Support payments will be treated as income. 

Although there were no specific funding initiatives for Inland Revenue it’s interesting to dig into the formal Vote Revenue Appropriation. The total 2022/23 appropriation for “Services for Customers” is $721.8 million, an increase of $120 million or near 20% from the 2021/22 appropriation of $600 million.  This increase is mainly due to re-categorisations and transfers including a transfer of $55.8 million for ongoing operating costs arising from the Business Transformation programme.

Breaking it down there’s an extra $9.4 million for investigations and over $37 million for tax return processing, both of which reverse falls in funding in the 2021/22 appropriations. The biggest increase though is for Services to Ministers and to inform the public about entitlements and meeting obligations which is up $56 million or 21,7% from 2021/22. I expect some of this will be to remind people of their eligibility for the cost of living payment, but there may also be initiatives about tax obligations and the cash economy. 

In summary, a very boring Budget from a tax perspective although leaving income tax thresholds unchanged for another year is now something of a political hot potato for the Government.  The intention appears to be to address this in next year’s Budget which is of course an election year. We shall wait and see. 


*Terry Baucher is an Auckland-based tax specialist with 25 years experience. He works with individuals and entities who have complex tax issues. Prior to starting his own business, he spent six years with one of the "Big Four' accountancy firms including a period advising Australian businesses how to do business in New Zealand. You can contact him here.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

64 Comments

Landlords around the country furiously working out how to charge their tenants $350 in three monthly installments starting from August

Up
27

Get over yourself. Not all landlords are evil. 

Up
5

That's blasphemy here.. 

Up
3

I cHaRgE bElOw AvErAgE rEnT

Up
7

...and became a landlord by accident when I inherited a house and accidentally decided not to sell it, or moved into a new house and accidentally decided not to sell the old one, or accidentally moved to a new city and decided not to sell the old house... 

Up
9

Cost of living?

1. Tax people.

2. Credit it back to them.

Up
19

$27/wk for 3months may still buy a block of cheese/wk over winter at the current rate of price increase 

Up
3

I mean, why not just reduce tax by the same amount? Batty...

Up
16

That would be a long term solution/commitment.

It's typical Labour to patch things up and fumble through, with no real long term plan.

Up
12

It’s friggin pathetic from this bunch of muppets.

Up
2

talking about muppets,  Luxon claiming NZ inflation was higher than other comparable countries...Canada same, UK higher, US higher, Netherlands higher...only Oz lower but they have minerals and no climate expenses...guy should do his homework..at least the labour muppets dont want to reward  Richie Rich

Up
2

Labour do NOT, ever, reduce tax

Up
5

Where is govt going to find all these new people for their new departments?

Up
2

Mahuta still has plenty of relatives left

Up
22

On which side of the family?

Up
3

Nearly all those hired for Covids.

Up
0

How much is tax going to have to go up to pay for all this?

Up
1

Perhaps ask national regarding their tax cuts 

Up
1

So we will get tax bracket adjustments prior to the election in 2023?

He is effectively preparing a straight bribe from the government for august next year by dropping some now this august.

So he hands a bribe to what, 80% of the adult population who earn less than 70k 

I'm really impressed by how machiavellian and cunning Robertson has proven to be. For a man with no background in economics or finance, he knows how to crush his enemies, reward his friends and enrich his supporters.

Up
5

Are Nationals tax cut promises "bribes" then too?

Up
4

They seem to attract a lot more scrutiny than the defacto tax raises of not enforcing the PTA and then not adjusting the tax brackets for inflation, but no one ever seems to call that a 'tax hike' either. Funny that. 

Up
3

Sharon Zollner just called it that on the One news coverage actually.

Up
1

Reducing fiscal drag looks like a bribe, but is actually just ensuring the burden of tax falls more equitably.

Up
2

Of course

Up
0

Yes they are.

Up
0

Robertson trying to underline that his government has nothing to do with, and not responsible for any inflation, ever. Not his fault. Here, have some social welfare.

Up
13

Labour mock National's tax cuts, then give ~$20 a week to some people.

Clearly designed to cover the fuel levy being reintroduced in August. But the $350 question is...will it be enough by then?

Up
12

Won't giving people 'free money' without increasing the quantity of goods and services produced/available for consumer within the economy, simply make inflation worse, not better?

Up
15

Depends if it’s being used to service debt or not

Up
0

If my wife gets it I'll be advising it goes into the petrol account to soften the blow come August's fuel excise 'hike'

Up
1

Yes. 

Injecting extra cash creates extra demand.

To solve the problem we need extra supply.

Idiots.

 

Up
10

I would have thought inflation forecast to be running at 5% up to the end of 2023 and no indexing of the tax brackets in sight would be the big story. 

Up
5

Of course there is no changes in tax  threshold. Inflation and tax-creeping. Nothing to see here.

Up
15

Ah - that's what's going to pay for it then. How dumb of me not to realise that.

Up
1

Why not just fully subsidise public transport? To me this would be the simplest, easiest and quickest way to reduce emissions and congestion in our cities.

If free to use then there will be back end savings as no need to install/maintain/operate systems to collect fares from users. Also this would speed up loading/unloading as no need to tag on/off.

Most people would have to seriously consider their options if their choice was get a bus for free to work vs the convenience but more expensive option of driving themselves. For those who choose to drive they would find that the roads are much emptier and parking more available.

Or am I missing something?

Up
16

I think the big thing there would be less RUCs and petrol excise tax coming in, so less funding available for roads, although granted local roads are maintained by local councils.

Up
1

They could use some of their congestion charges? But this way around there is actually a carrot in the carrot and stick scenario

Up
1

As long as they use it in the bits with gold plated public transport options and not the bits where it's taking them five years to paint some bus lanes on the motorway. 

Up
1

Agree but delivery does not seem to be the strong point for any of the places I have worked, it is not unique to public institutions. I think what aggravates Joe Public is that a private company wasting time/resources is reducing their profit, a public funded project wasting/time resources seems to always end in "we need to increase taxes"

Up
0

Local councils also have the option of allowing intensification to reduce the cost of sprawl's many more roads and maintaining them.

Up
0

Those electronic fares also help them know where/how the PT system is being used. You might save some cost but lose a lot of information about how to actually make the system work for people. A comptent commercial operator would have reason to do this, but unfortunately we have councils dictate to bus compaies where they are to put their buses.

Up
2

Good point as this information would be useful but at a higher level is this the level of detail required?

Could an operator/dispatcher just see through a camera that the bus platforms are getting too crowded and dispatch an express bus to clear the platforms as required? This would work on the Northern Express busway where it is effectively a hub and spoke model, but as this is the only one I have exposure to I am not sure if it could be extrapolated to other areas of AKL / other cities in NZ. But it does not have to be the same solution for each area. (Otherwise I would ask why no rail link to the North Shore but proposing to spend $12b on a railway extension from CBD to airport ha ha)

Up
0

Any reduction in emissions and congestion from free or reduced cost public transport occurs from car travellers switching to it. This is not the same as any patronage increase as existing public transport users could make more trips or you may get people who previously walked switching to public transport, etc. The public body providing the free public transport is foregoing fare revenue; this money has to be raised through taxes or rates. The question is whether it's a cost effective solution and any other reasons you may have to provide free public transport.

Fares are only one factor that people take into account when deciding which travel mode to use. Public transport is usually slower than car travel and fairly price inelastic which means that demand isn't very responsive to price changes. As it only has only a small share of travel (analysis of the Ministry of Transport Household Travel Survey for Auckland has it accounting for just under 4% of trip legs and 4.5% of distance travelled) and as car travellers switching are only part of any increase, large percentage increases in public transport use may have little effect on the number of other vehicles on the road and hence on emissions.

You are correct to point out that there is a saving in not needing systems to collect fares from users. From memory the capital cost of the Auckland Hop card system was over $100 million and there will be a cost in running it each year. NZTA has been working on a national ticketing system since February 2016 according to https://nzta.govt.nz/walking-cycling-and-public-transport/public-transp… so I'm puzzled as to why it has just been reannounced.

Up
1

Joke budget. A whole hodge podge of random stimulus, designed to avoid at all costs the obvious option of adjusting tax brackets. But they won't do that simply because they're so desperate to avoid "rich pricks" being better off by even one dollar.

Up
17

"they're so desperate to avoid "rich pricks" being better off by even one dollar."

It is starting to seem that is their primary focus.

We should well and truly have a tax Free bracket. My thoughts are that is should be related to benefits and minimum wages.

0% = 0 - Sole Parent Job Seeker Rate

10% = SPJS Rate - Minimum Wage

20% = Minimum wage to 2x Minimum Wage

30% = 2xMW - 3xMW

40%= 3xMW - 4xMW

50%= for earnings more than 4xMW

ACC levy is scrapped and is funded via general taxes.

Up
2

Perverse incentive: to achieve tax cuts, just cut the minimum wage.

 

Up
0

..slowly but surely TOPS UBI will make more and more sense. 

Some of us worked it out when Morgan came up with it. Most are still too narrow minded.

Up
8

A UBI is the inevitable outcome.

However TOPS version was neither Universal, nor Basic.

Up
0

The big announcement was the cost of living payment of $350 in three monthly instalments starting 1 August (about $27 per week)

Can I call this helicopter money? 

Up
8

Where's pacifica these days? A ministry for disabled people would make him/her happy (not that it will do much)

Up
0

Govt spending 1billion to tackle the cost of living crisis = using inflation to tackle inflation. You couldn't make this stuff up.

Up
22

Democrats using the same logic in the US. 

Up
3

Is Terry filling the gap caused by Jenee's departure?

Up
0

Not for me 

Up
6

Like everybody else I'm still getting my head around the detail..

On first look:
"The Backwards Budget" is an apt name. Though not as catchy, I'd call this The Gormless Budget

Up
4

Yes inflation is out of control so lets put some fuel on the fire and spend more and really get it rising, just like what happened to house prices

Up
6

Need to increase GST threshold for small business Australia has a higher level before GST kicks in.

Up
2

So 117 per month for three months, in August, after fuel subsidy come off. Hope those receiving it realise that 117 will be swallowed up at the pump so don't go planning a big party, inflation will still be there in November.

Up
1

The fuel excise cut is essentially a $235m cut to the land transport fund. 1/4 of a billion fewer dollars to spend on road maintenance. Clever what they did eh?

Up
2

Look at https://www.beehive.govt.nz/release/government-cuts-25c-litre-fuel-exci…

It says "We will be meeting the costs of this through savings and reprioritisation from the COVID Response and Recovery Fund."

I haven't found anything in today's budget announcements about how they're funding the continuation of the fuel excise tax reduction.

Up
1

Cynical lolly scramble that doesn’t address longer term, structural issues.

depressing.

Up
1

Roberston "You're a beneficiary, you're a beneficiary, you're all a beneficiary..."

Up
1

There are three lights

Up
0

There are four lights. 

Up
0