May 30 2017
The budget usually has a few sweeteners to keep voters happy ahead of an election. Not surprisingly, when Steven Joyce, Minister of Finance, presented his first Budget, he said the Crown’s books are steadily improving and the outlook for New Zealand’s economy is positive.
But what does all this mean for you? In this article, we’re looking at how some key points in the Budget will affect your daily life.
The popular announcement: tax cuts
Every working New Zealander will benefit from tax cuts. These will come into effect on 1 April 2018. The cuts are aimed at benefiting lower to middle income earners.
The income threshold for the 10.5% lowest tax rate will rise from $14,000 to $22,000, putting an extra $11 per week in your hand. Similarly, the 17.5% middle income tax rate will be raised from $48,000 to $52,000, putting an extra $20 per week in your hand. There are no changes to the 33% highest tax rate for income earners paid $70,000 and over. However, because tax deductions are tiered, all taxpayers will benefit from the increases to the lower rates.
Changes to Working for Families
There are a number of changes to Working for Families also taking effect from 1 April 2018. For children under 16, the maximum credit for a first child will be raised by $9 per week, and for each subsequent child from $18 to $27 per week. The abatement rate will also be increased to 25%. However, families earning at the top of the Working for Families income scale will see the abatement threshold reduced to $35,000.
There will be increases to the Accommodation Supplement. Maximum payment rates for a two person household will go up from $25 to $75 per week. Larger households will see an increase of $40 to $80 per week. The Accommodation Supplement was last increased in 2007, so this will be good news if receive this supplement.
There’s also good news for students eligible for the Accommodation Benefit who live in high rent areas. You’ll be able to claim up to $60 per week, up from $40 per week.
Superannuitants have not been left out
As a result of wage increases from tax cuts, superannuitants will also benefit from 1 April 2018, as superannuation is linked to after-tax wages. Single superannuitants living alone will receive an extra $8.50 per week, $7.90 for single sharing, and $13.10 for couples.
On the down side
The Independent Earner Tax Credit will be discontinued, which will mean middle income earners may not receive as large a tax refund if they have been eligible for this credit in the past.
Earthquakes and insurance premiums
As expected, home owners will face an insurance premium rise of up to $69 per year to help replenish the Earthquake Commission’s Natural Disaster Fund, depleted as a result of the Christchurch and Kaikoura earthquakes.
This will take effect in November. The earthquake levy is calculated from your insurance cover, and will rise from the current 15c to 20c per $100 worth of cover, to a maximum of $276 per year.
Closing foreign tax loopholes
There government aims to close several foreign tax loopholes which are currently being exploited by multinationals and New Zealand corporates with offshore operations, allowing them to pack their New Zealand entities with tax-deductible debt arrangements to reduce tax. This initiative will happen over the next three years gathering more than $250 million.
The government gains are expected to come from three initiatives covering transfer pricing and permanent establishment avoidance, interesting limitation relating mainly to related party debt, and hybrid financial instrument mismatches. In recent years, these have been subject to a string of successful court challenges by Inland Revenue.
Addressing ‘black hole’ expenditure
Another contentious issue addressed in the Budget is the treatment of company expenses known as ‘black hole’ expenditure. This relates to commercial initiatives that are later abandoned. At present, these expenses aren’t immediately tax deductible or depreciable.
The issue arose from a series of unsuccessful appeals by electricity generator Trustpower which went all the way to the Supreme Court. Trustpower was seeking relief for expenses related to an abandoned wind-farm development project.