BUDGET 2018: Bracket creep, wage growth and avoidance crackdowns fuel tax take rise
By Pattrick Smellie
May 17 (BusinessDesk) - Rising wages that take people into higher tax brackets, a growing population fueling economic activity, and a series of new revenue-gathering crackdowns are forecast to yield the government $5.7 billion more tax revenue over the five years to June 2022 than was expected just six months ago, Budget documents say.
Higher personal and corporate tax takes in the current fiscal year are "expected to persist", the Treasury's Budget and Fiscal Update says, meaning a substantial increase from the forecasts in the December Half-Year Fiscal and Economic Update.
Tax paid by wage and salary earners is expected to grow by a total of $9.9 billion between now and the 2022 fiscal year, while collecting GST on low-value imported items, which the government announced will happen from October next year, is expected to raise $53 million in the nine months to June 2020, rising to $87 million in 2021/22 to yield $218 million in extra GST over the next five years.
The corporate tax rate rises steadily by between $500 million and $1 billion a year over the next five years, to yield an extra $3.5 billion over five years from this year.
The total increase in the tax take is forecast to be $23.4 billion higher than it was last year, with core Crown revenue sitting at a projected 28.3 percent of gross domestic product by June 2022.
Removing the ability of landlords to offset losses on rental properties against other sources of income is forecast to raise $190 million a year by 2021/22 and to produce $325 million in extra tax over five years. A fresh round of tax compliance activity, for which there is new funding of $26.5 million over five years is expected to produce an extra $50 million a year in tax that would previously have gone unpaid.
All up, GST on imported goods, new loss ring-fencing rules and anti-avoidance activity are projected to be worth $320.7 million by 2021/22 and to yield an extra $699.8 million, although those improvements are offset by $1.1 billion of forecast deductions against research and development expenditure under the new R&D tax credit system, which will come into effect from April 2019.
Meanwhile, Racing Minister Winston Peters announced a change to the tax treatment of bloodstock to remove what he said were impediments to new breeders entering the market.
The Budget estimates tax deductions made available by the policy will cost the government $4.8 million in tax revenue over the next four years by allowing deductions for the costs of “high quality horses acquired with the intention to breed”.
“The previous rules around tax write-downs did not serve their original purpose of promoting new investment as they favoured established breeding businesses rather than attracting new entrants,” Peters said.
To qualify, a horse “must be a standout yearling”, with the new rules applying to yearlings acquired from premier bloodstock sales from 2019 onwards.
Peak lobby group Business NZ criticised the decision to single out bloodstock for full tax deductibility.
“Full capital tax deductibility helps to increase investment in technology, capital and grow productivity, which is important for all businesses. Business believes capital deductibility should be available to all businesses and industries, not just racing,” said chief executive Kirk Hope.