The government’s Budget, delivered on 21 May by Finance Minister Bill English, focuses on fiscal prudence and maintaining a steady course. The government’s economic forecast remains upbeat. Economic growth is expected to average 2.8% over the next four years. This is strong growth by New Zealand standards and, what’s more, it is not driven by inflation, which this year is at a staggeringly low 0.1%.
The elusive surplus has continued to the government elude the government, which came as a surprise to no-one. The fiscal priorities are returning to surplus and using those surpluses to fund modest tax cuts and reduce net debt to 20% of GDP (or lower if greater-than-expected surpluses allow). What will be of a concern for the government is that the forecast surplus for next year also looks wafer thin, at $176 million.
Key Tax Developments from the Budget
Property tax compliance measures
The Budget contains measures to bolster and enforce the tax rules on property investment.
The government wants to ensure that people buying and selling properties for a profit – including foreigners – are paying their fair share of tax.
These measures include establishing a “bright line” test that will tax any capital gains made from the sale of an investment property owned for less than two years, introducing transparency measures, particularly aimed at non-resident investors, committing to an extra $29 million of funding for Inland Revenue to increase its property tax compliance activities, and introducing a withholding tax for non-residents selling residential property
The tax will apply to the full gain at the taxpayers’ marginal income tax rate, 33% for incomes over $70,000.
Additional funding for Inland Revenue audits
New Zealand Inland Revenue will receive an additional $73 million over five years to boost audit activity – predictably for property, but also aggressive tax planning and the hidden economy. Small and medium size businesses, including self-employed individuals, are likely to come under renewed scrutiny.
KiwiSaver $1,000 kick-start payment to cease
People enrolling in KiwiSaver will no longer receive a $1,000 kick-start payment. The change does not affect existing KiwiSaver members.
The government subsidy of up to $521 a year per member on contributions will remain.
Personal tax rates
No announcements here. That’s no surprise. But “beginning to reduce income taxes from 2017” remains a priority.
There’s a hint in terms of the size of any tax cuts. The government’s reserved $2.5 billion for new spending in 2017, compared to $1 billion in 2016.