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.
64 Comments
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
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.
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?
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"
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.
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)
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.
"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.
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.
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