Pre-election budget benefits average New Zealanders

Moore Stephens Markhams tax specialist and business advisor, Kiran Bhikha shares his thoughts on the impact for business from this year’s Budget, see below.

With the announcement of Steven Joyce’s first budget, in an election year no less, we see a well-balanced budget, albeit with very few surprises.

As with previous years, the trend has continued with several of the major budget items ‘announced’ having been drip fed to us over the past few weeks.

This year, we see a continued emphasis on keeping up with population growth and the ‘growing pains’ this brings.  The typical pre-election ‘lolly scramble’ is somewhat conservative this year, but with spends where necessary.

At the beginning of his speech, Mr Joyce announced – “The 2017 budget is about delivering for New Zealanders”.

Overall, this budget has delivered for the average New Zealander, with a little of something for everyone.


Talking taxes

Business Taxes – ‘Black Hole Expenditure’

The budget includes proposals to address business expenditure such as feasibility costs that are neither depreciable nor immediately tax deductible.  The proposals would allow for an immediate deduction for feasibility expenditure that does not result in an asset created on the balance sheet.  Where an asset is created, this would then be capitalised and be treated as capital expenditure for tax purposes and depreciated.

The same treatment would apply allowing for an immediate deduction for capitalised feasibility expenditure or other costs if the asset is abandoned.  The IRD is currently seeking public feedback on the policies, open until 6 July.


Family Incomes Package to help lower-income families

The major focus in the tax area is in the form of the $2 billion Family Incomes Package that aims to reduce the tax burden and housing costs for lower-income earners.  The biggest change is through an update to the lower income tax thresholds:

  • $14,000 threshold will be increased to $22,000 (approximate tax reduction of $11 per week)
  • $48,000 threshold will be increased to $52,000 (approximate tax reduction of $20 per week)

Despite this, low-middle income earners will not see as much of an impact with the removal of the Independent Earner Tax Credit.

We also see a boost to the Family Tax Credit through an additional $9 per week for the first child under 16 and $18 to $27 for each subsequent child.

With rising housing costs, we also see an increase to the Accommodation Supplement (maximum rate increase of between $25 and $80 a week for households) and Accommodation Benefit payments (weekly payments to increase by up to $20).

These measures will come into effect from 1 April 2018.


So, who were the big winners on the day?

Social development, public sector and infrastructure are certainly the key themes this year’s budget.  Extra money for healthcare, education, infrastructure and other public sectors to meet the needs of a growing population, along with giving more back to middle New Zealanders.

Healthcare has seen another allocation of $3.9 billion over the next four years.  The sizeable allocation is largely to relieve the pressures faced by our systems from the growing population and is therefore just sufficient to meet demand.

Education is another winner, securing an additional $1.1 billion to fund six new schools, 305 classrooms and 11 special education satellite unit; to be built in response to increases in student rolls.  The funds will also be used towards an increased operational grant funding for schools and early childhood education centres.

Police and Justice a further $1.2 billion for Police and the Justice Sector in an effort to reduce crime and reoffending. This is to go towards increasing police staff numbers by 10 percent, improvements to corrections services and prison capacity, burglary prevention, reducing youth offending, and reducing family violence.

Social Housing Funding of $185 million has been earmarked for more emergency housing and other initiatives to meet growing housing needs.

Social Development and Vulnerable Children $618 million for various social development initiatives including an investment of $424 million towards the new Ministry for Vulnerable Children and $64 million to help get people into employment.

Infrastructure an additional $4 billion invested towards improving infrastructure with almost $1 billion set aside for rail improvements and $812 million to rebuild the earthquake damaged sections of State Highway One between Picton and Christchurch.

Economic Investment a total of $1 billion towards developing trade and businesses with $147 million towards tourism infrastructure, $222 million over four years to promote the film industry, $81.9 million for the Endeavour research fund and $74.6 million for Callaghan Innovation R & D grants.


Here’s a graphic snapshot of the key points, courtesy of CAANZ.

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