Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Budget 2016: sensible and safe, but more to be done

Budget 2016: sensible and safe, but more to be done

Today’s Budget is sensible and predictably consistent with the Government’s longer term plan to maintain surpluses, reduce debt and grow the economy.

But is it bold enough to make a real difference to challenges like infrastructure and housing?

With the return-to-surplus imperative requiring a focus on fiscal prudence and net Crown debt reduction, the Budget is responsible. However, there is room for bolder measures to address pressing issues like transport and tourism infrastructure, and housing availability and affordability, particularly in Auckland?

The Budget allocates an additional $2.1 billion to infrastructure investment over the Budget period. More than $1.7 billion of this is on education (new classrooms) and Inland Revenue’s new tax administration system – both are worthwhile investments but leaving little for additional spending on other infrastructure needs (e.g. roads, rail and tourism). A contingency of $600 million for additional infrastructure investment may fall short in meeting other urgent needs.

$400 million extra funding for housing (social and emergency housing, healthier homes and freeing up Crown land in Auckland) will be welcomed but it may not address the level and depth of the housing need.

The Government may be keeping its powder dry though, with a National Policy Statement on Urban Development to be released soon. This will direct councils to allow more housing development and to measure the impact of their decisions on house prices.

The additional $760 million for science and innovation will boost investment in the productive economy. The focuses on research particularly in health, apprenticeship programmes, and regional initiatives are sensible.

The tax package announced in April will benefit individual taxpayers and small businesses mainly by reducing the burden of interest and penalties.

“The changes to provisional tax will give taxpayers more options but until the detail is finalised the jury is out on the compliance cost savings,” said Peter Vial, Tax New Zealand Leader, Chartered Accountants Australia and New Zealand.

“The simplification measures in the package are a good start but there is plenty more the Government could do to simplify tax. We expect Inland Revenue’s new tax administration system will provide more simplification opportunities.”

Businesses subject to the Emissions Trading Scheme will be hit by the phasing out over three years of the Government’s “one-for-two” subsidy, which has allowed some businesses to pay one emissions unit for every two tonnes of emissions. The changes will affect mainly the waste, energy and transport industries and could lead to higher costs for consumers, for example increased petrol prices. On the plus side the doubling of the price should encourage a reduction in emissions.

Looking ahead to next year’s Budget

Last year’s Budget focused on vulnerable families providing the first real increases in benefits in over 40 years. This year’s focus is on infrastructure, housing, innovation and health. What would we like to see next year?

There are no proposals to address the effect of tax ‘bracket creep’ this year. We would expect movement on this issue next year. The average annual wage is $59,000 currently and is expected to rise to $63,000 by 2020. The average wage earner is already subject to a marginal tax rate of 30 percent and more and more New Zealanders will be paying tax at that rate as wages increase.

Our personal marginal tax rates are relatively low by international standards but our highest two tax rates (30 percent and 33 percent) apply at relatively low levels of income - $48,000 and $70,000 respectively. The Australian Government is partially addressing the effects of bracket creep by moving one of its income thresholds from A$80,000 to A$87,000, with a marginal tax rate of 32.5 percent to apply to income between A$37,000 and A$87,000.

“Our Government should follow suit and take a hard look at the current thresholds and tax rates as soon as fiscal conditions allow,” says Vial.

The Budget does not signal any future change to the company tax rate. This is neither a surprise nor an omission but the Government should keep monitoring the global trends in corporate tax rates. The Australian Government has signalled the Australian corporate tax rate will fall to 25 percent, albeit gradually over the next 10 years and with an earlier reduction for SMEs. The UK Government has been much bolder in announcing it will move its corporate tax rate from 20 to 17 percent over a shorter timeframe. New Zealand needs to resist joining a race to the bottom but should keep a watching brief on the effect of our rate on competitiveness.

Again no changes to the age of entitlement for National Superannuation are contemplated. An ageing population and significant growth in national superannuation and health costs suggest a long term view is needed on this issue.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Motor Industry Association: 2020 New Vehicle Registrations Suffer From Covid-19

Chief Executive David Crawford says that like some other sectors of the New Zealand economy, the new vehicle sector suffered from a case of Covid-19. Confirmed figures for December 2020 show registrations of 8,383 were 25% ... More>>

CTU 2021 Work Life Survey: COVID And Bullying Hit Workplaces Hard, Huge Support For Increased Sick Leave

New data from the CTU’s annual work life survey shows a snapshot of working people’s experiences and outlook heading out of 2020 and into the new year. Concerningly 42% of respondents cite workplace bullying as an issue in their workplace - a number ... More>>

Smelter: Tiwai Deal Gives Time For Managed Transition

Today’s deal between Meridian and Rio Tinto for the Tiwai smelter to remain open another four years provides time for a managed transition for Southland. “The deal provides welcome certainty to the Southland community by protecting jobs and incomes as the region plans for the future. The Government is committed to working on a managed transition with the local community,” Grant Robertson said. More>>


OECD: Area Employment Rate Rose By 1.9 Percentage Points In The Third Quarter Of 2020

OECD area employment rate rose by 1.9 percentage points in the third quarter of 2020, but remained 2.5 percentage points below its pre-pandemic level The OECD area [1] employment rate – the share of the working-age population with jobs – rose ... More>>

Economy: Strong Job Ad Performance In Quarter Four

SEEK Quarterly Employment Report data shows a positive q/q performance with a 19% national growth in jobs advertised during Q4 2020, which includes October, November and December. Comparing quarter 4, 2020, with the same quarter in 2019 shows that job ad volumes are 7% lower...More>>

NIWA: 2020 - NZ’s 7th-warmest Year On Record

The nationwide average temperature for 2020, calculated using stations in NIWA’s seven-station temperature series which began in 1909, was 13.24°C (0.63°C above the 1981–2010 annual average). New Zealand’s hottest year on record remains 2016, when... More>>

Quotable Value New Zealand: Property Market Set To Cool From Sizzling To Warm In 2021

Nostradamus himself could not have predicted the strange series of events that befell our world in 2020 – nor the wild trajectory of New Zealand’s property market, which has gone from “doom and gloom” to “boom and Zoom” in record time. Even ... More>>