By Frank Newman on 25th May 2015
Budget 2015 continues a pattern of incremental rather than seismic change. There were however some surprises in the social policy area.
- A $790m child hardship package which includes a $25 increase in core benefits for beneficiaries with children. This appears to be the “dividend” from a government initiative to move people from welfare to work and savings more than first projected.
- Other changes in the welfare area include:
– Requiring most sole parents to be available for part-time work of 20 hours a week (instead of
15) once their youngest child turns 3 (instead of 5).
– Lower-income working families not on a benefit will get up to $12.50 a week extra from
Working for Families, and some very low-income working families will get $24.50 extra.
– The childcare assistance subsidy for low-income families will increase from $4 an hour to $5
an hour for up to 50 hours of childcare a week per child.
- With Auckland in mind, from 1 October the government will change the “intention test” tax regime to include all residential property sold within two years of purchase, thereby making gains on resale taxable income. Exemptions apply where it is a persons main home, inherited, or transferred in a relationship property settlement. The two-year rule does not apply to other forms of investment asset but all remain subject to the intention test and does not exempt residential investment property sold after two years if it was purchased with a resale intention.
- Whether the new law is a capital gains tax or not is one of semantics, but it does make it easier for a future government to turn it into a capital gains tax, for example by extending the time frame to say 5 years or 10 years and extending the range of assets caught by the time limit to include shares, businesses, art, and so on.
- These new measures follow the announcement by the Reserve Bank that it will impose greater lending restrictions on property buyers in Auckland and relax them elsewhere:
– From 1 October residential property investors in Auckland will be required to have a minimum
– Banks will continue to be limited to 10% of new mortgage lending to Auckland owner-
occupiers with deposits of less than 20%.
– Outside Auckland, however, banks will be allowed 15% of their new mortgage lending to low
deposit buyers, rather than 10% as now.
- An additional $29 million has been allocated to pursue property investors, bringing the total over the next five years to $62m. That is expected to generate $420m of extra tax over the five years! Put simply, the IRD will have more compliance officers “on the beat”. We encourage clients to consider Audit Shield (see below).
- From 1 October foreigners buying property in New Zealand will be required to have a NZ Bank account and IRD number. This is in part addressed at tracking down foreigners speculating in our property market but also counter money laundering in the cash economy.
- The government will make 500ha of state-owned land in Auckland available for housing. It is estimated that this may add between 4,500 and 10,000 houses. This is sensible, but not a quick fix. The time frame is measured in years rather than months, and longer if council planners hold up the process as is usually the case.
- An extra 3000 tenants will be entitled to the income-related rent subsidy by extending the subsidy to community housing providers.
Business and the economy
- ACC levies will reduce by $375m next year, followed by cuts of $125m in 2017. From July 1, ACC levy cuts ($130) already announced in vehicle registrations will come into effect.
- New funding of $210m for more ultra-fast broadband and $150m for improvements to rural broadband.
- $12m has been allocated for the New Zealand Business Number which is a foundation stone for data sharing by government departments and online services. This is part of the governments proposal to reduce compliance costs by 25% by 2017.
- $425m has been allocated to support Business Growth Agenda initiatives. $25m has been allocated to establish three regional research institutes to focus on creating new jobs in the regions.
- Lower than expected tax revenues has caused the government to report a deficit for the year of $684m against a forecast surplus of $372m. A surplus of $176m is projected for the 2015/16 year. Whether that is achieved will largely depend on international commodity prices and exchange rate movements.
- Economic growth is expected to average nearly 3% over the next four years.
- Unemployment is expected to fall below 5%.
- Government spending represents about 34% of New Zealand’s gross domestic product (a measure of the effective tax rate of all New Zealander taxpayers). Its long-term target is 30%.
- If budget targets are achieved the Government has signaled small tax cuts in 2017 (election year!).
- Border security will be beefed up with funding from a new “border clearance levy” for arriving and departing passengers of $16 and $6 respectively.
- The $1,000 KiwSaver kick-start has been removed with immediate effect. All other subsidies remain. Taking away the kick-start incentive will remove the attraction of parents signing up their kids for a free $1,000, but there are still compelling reasons for +18 year olds to join. The free money that remains is the $521 annual tax credit for all, the employer subsidy for salary and wage earners, and the significant first home buyer benefits.