2014 Election impact on Budget

beehiveOver recent years there has been a sense of déjà vu through the Budget cycle where we have seen a pattern of minor change and tweaks, with a ‘steady as she goes’ approach.  Given the upcoming election and the fact the 2014 Budget was potentially National’s last, there was the potential for more substantive change.  However, this did not eventuate and, as before, the focus has remained on maintaining a stable environment and steady economic growth.

Although not front and centre, several tax changes were announced.  The Budget included proposals to change the tax treatment of certain research and development (R&D) costs. The Government estimates these R&D related initiatives will return over $58 million to eligible companies over the next four years.  In particular, capitalised development expenditure (incurred on or after 7 November 2013) that relates to a patent will be depreciable (where the current tax treatment limits the depreciation to the cost of applying for the patent itself).

Also, a one-off deduction for capitalised expenditure on intangible property that is written off for accounting purposes will be allowed.

A further significant change in relation to R&D is that businesses will be allowed to ‘cash-out’ an amount of their tax losses arising from qualifying R&D expenditure (instead of carrying them forward).

In the area of social assistance, changes have been targeted at low and middle income families with newborn babies. In particular, the Budget sets out that eligible families receiving parental tax credits (i.e. those not on a benefit and not eligible for paid parental leave) will receive an increased tax credit (up to a maximum of $220 per week) for longer periods of time (out to 10 weeks from the current 8 weeks).  As a result, over 1,200 additional lower-income families are expected to claim the parental tax credit because it will pay them more than they would otherwise receive from paid parental leave.  There will also be changes to the abatement criteria to better target families in need.

Paid parental leave will be extended by four weeks.  This will be implemented with a two week extension from 1 April 2015, and a further two weeks from 1 April 2016.  The eligibility criteria for this will also be widened to include caregivers, and people who have recently changed jobs.

The Budget also included the abolishment of cheque duty from 1 July 2014. Cheque duty was acknowledged as an outdated tax due to changes in the way we transact.  The tax previously raised $17 million in revenue (in 1991/1992) but had declined to just $4 million.

Other changes include reductions in ACC levies and freezing the Student Loan repayment threshold at the current level of $19,084.  In addition, extra funding was allocated to the IRD to follow up on unfiled tax returns.  It is estimated that this extra funding will generate a gross increase in Crown revenue of $297.5 million over the next five years.

The above changes, although minor, are broadly positive.  It is difficult not to look ahead to next year with a sense of anticipation.  It will either be a new government’s first Budget, where ‘change’ is likely, or the National Government, full of confidence after winning an election, might introduce more significant change knowing they are safe for another three years.

Published Spring 2014.

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