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Support for Today, Building for Tomorrow

The 2023 Budget known as the “Support for Today, Building for Tomorrow” was presented by Finance Minister Grant Robertson yesterday.

The net deficit of $6.96 billion for the year to 30 June 2023 was significantly more than the expected deficit of 3.63 billion. Surpluses are not expected to return till 2026, which is longer than forecasted.

Debt levels of $128 billion are expected to rise to $181 billion in 2027. When Labour first came to power in 2017 debt levels were $58 billion.

The major areas of new expenditure are:

  1. 20 hours of free early childhood care for two years old — subsidies for childcare centres will rise by 5.3%
  2. Free public transport for primary school children and half-price public transport for under 25s
  3. Removal of the $5 co-payment for prescriptions — $118 million has been allocated to reduce waiting lists and $63 million for 500 extra nurses
  4. $6 billion for post-cyclone infrastructure
  5. $403 million for heating and insulation for 100,000 more homes and $465 million for 3,000 new public housing places.

The only major tax change is that the Trustee’s tax rate has been increased from 33% to 39%.

In the “fine print” of the Budget was the adoption of the OECD tax proposal “Pillar 2 Global Anti-Base Erosion Model” which ensures multi-nationals pay a minimum level of tax.

A “Tax Principles Act” was also tabled yesterday in Parliament. While the detail is not known yet, David Parker the Minister of Revenue, announced it includes horizontal and vertical equity of tax and further collecting and publication of information on tax fairness.

Alliott’s Commentary

A larger-than-expected deficit, higher debt levels, and declining economic growth continue to be concerning.

There is little or nothing in the Budget for the SME business community which continues to be challenged with labour shortages, high wages and rising supplier costs.

There are 546,000 small businesses in NZ representing 96% of all firms. SMEs contribute over a quarter of NZ’s GDP and employ 30% of all employees in NZ.

We would have liked to have seen some tax breaks or incentives for SMEs similar to the recent Australian Budget. The Australian Budget allowed SMEs to get a tax deduction for capital expenditure under $20,000, allocated $23.4 million to SMEs to build resilience against cyber threats and also for bonus tax deductions for energy-saving assets. (Australia also has a lower 25% corporate tax rate for SMEs generating turnover under $50 million.)

Grant Robertson commented he did not believe the Reserve Bank would need to hike interest rates to deal with the increased spending. However, we continue to see the Reserve Bank and Trading Banks increase interest rates. It’s therefore difficult to understand how further government spending cannot result in inflation and interest rate rises.

The increase in the Trust tax rate from 33% to 39% brings this in line with the top individual tax rate. But before you rush out and wind up your Trust remember:

  1. Trusts still provide an excellent form of asset protection
  2. You can still distribute trust income to beneficiaries who may be on lower tax rates.
  3. Winding up Trusts with property can result in depreciation recovered and re-set the Brightline rules.

Need help?

For assistance interpreting Budget changes and how they may affect Doing Business in New Zealand, please contact the team at Alliott NZ in Auckland on +64 9 520 9200.