Govt sticks to its guns on tax, focuses on expenditure
16 May 2013
Government sticks to its guns on tax, focuses on expenditure
New Zealand Institute of Chartered Accountants (NZICA) General Manager – Tax Peter Vial ACA says: “The lack of major tax reform in today’s Budget is not a surprise as the Government’s focus is on constraining spending increases and rebuilding Christchurch, but bolder moves may be needed in the medium or long term.”
“The Government has not taken any radical steps to reform the tax base, having considered and rejected other potential changes such as a land tax or a capital gains tax,” says Mr Vial.
Finance Minister Bill English focused on big ticket issues such as housing, improved public sector efficiency, the Christchurch rebuild and poverty relief measures in Budget 2013.
Some minor tax reforms were announced, says Mr Vial. “It’s good to see the Government tackling some long-standing issues with certain types of ‘blackhole expenditure’ which is expenditure that is neither deductible nor depreciable. Specific areas targeted here are patents, resource consents, dividend payments, stock exchange listings and annual meeting costs.”
“It has been recognised that taxpayers should be able either to deduct such expenditure immediately or to capitalise it and depreciate it over time.”
The Government is also proposing changes to allow small businesses to claim losses on research and development.
“The R&D tax break for small businesses will be useful provided the rules for accessing it are straightforward”. The measure will be targeted at small R&D start-up firms and go into consultation in June.
The Minister confirmed that changes will be made to the thin capitalisation rules mainly targeted at private equity investors. The changes are expected to generate $20 million over three years from 2014/15. “It is critical that the changes do not overreach and alarm foreign investors.”
“The detail is still to be finalised and NZICA will continue to engage with officials as they firm up on the proposals.”
Businesses and households will welcome significant ACC levy reductions. The levies will reduce by $300 million in 2014/2015 and potentially about $1 billion in 2015/2016.
Tax revenue for the current year is up from the estimate by $1.5 billion. Peter says this not surprising given the economy has expanded and unemployment has dropped.
“A further sizeable jump is expected for next year, in fact the Government is banking on increases of about $3 billion per year for the next three years.”