The Minister said the outlook for New Zealand’s economy is positive and the Crown’s books are steadily improving. We highlight some of the Budget’s key points below.
From 1 April 2018, there will be tax cuts for every working New Zealander with particular emphasis on lower to middle income earners.
Income that can be earned at the lowest tax rate of 10.5% will rise from $14,000 to $22,000 which means $11 more a week. The 17.5% income tax rate will be raised from $48,000 to $52,000 giving an increase of $20 a week.
There’s no change to the 33% top tax rate income threshold of $70,000. However, all taxpayers will pay less tax from 1 April next year due to the lower tax rate bands being raised.
Working for Families
From 1 April 2018 there will be changes to the Working for Families (WFF) regime. The maximum credit for the first child under 16 will be raised by $9 a week, and for each subsequent child under 16 years old by between $18–$27/week. The abatement rate is increased to 25%. However for families earning at the top of the WFF income scale, the abatement threshold is reduced to $35,000.
The Accommodation Supplement increases the maximum payment rates for a two-person household by between $25 and $75/week. For larger households, there will be increases of between $40–$80/week. With the Supplement being last increased in 2007, this boost will be very welcome for affected families.
Students living in high rent areas who are eligible for the Accommodation Benefit will be able to claim up to $60/week, up from $40/week.
The Independent Earner Tax Credit will be discontinued.
Increase for superannuitants
New Zealand Superannuation payments are pegged to after-tax wages. As a result of the wage increases relating to the tax cuts (see above), from 1 April next year couples receiving NZ Superannuation will get $13.10 extra a week, $7.90 more for a single person sharing, and $8.50 for a person living alone.
Insurance premiums to rise
In November, home owners face an insurance premium rise of up to $69/year. The earthquake levy will rise to 20c per $100 worth of insurance cover, to a maximum of $276/year. The current earthquake levy is 15c per $100 worth of cover; the maximum being $207/year.
These increases will help replenish the Earthquake Commission’s Natural Disaster Fund that has been seriously depleted following the Christchurch and Kaikoura earthquakes.
Foreign tax loopholes to be closed
Foreign tax loopholes currently exploited by both multinationals and New Zealand corporates with offshore operations are to be closed over the next three years. More than $250 million is expected to be gathered by the government over that period.
The gains are expected from three initiatives put out for discussion in the last nine months covering transfer pricing and permanent establishment avoidance, interesting limitation relating mainly to related party debt, and hybrid financial instrument mismatches.
The latter allow companies to pack their New Zealand entities with tax-deductible debt arrangements and reduce tax here. In recent years, these have been subject to a string of successful challenges in the courts by the Inland Revenue.
‘Black hole’ expenditure
The Budget has addressed the contentious treatment of so-called ‘black hole’ expenditure, relating to expenses borne by a company exploring a commercial initiative that is later abandoned. At present this expenditure is neither immediately tax deductible nor depreciable, and falls into a so-called ‘black hole.’
The issue was the subject of unsuccessful appeals all the way to the Supreme Court by electricity generator Trustpower, which sought relief for expenses related to a wind-farm development that did not go ahead.
Public feedback on Black hole and feasibility expenditure can be found here and is open until Thursday, 6 July.
To read more about the Budget go to Budget at a Glance or to read more fiscal material, go here.