Budget 2015 Explained

The seventh Budget from Finance Minister, Bill English is very much a balancing act with increases in benefits for some citizens offset by the removal of incentives for others.

Family Forecast

Fresh off plenty of political discussion around Child Poverty, the Government has introduced benefit increases for families with children by $25 per week after tax, the first non-inflation adjusted increase since 1972:

• Childcare assistance for low-income families will increase from $4 an hour to $5 an hour for up to a maximum of 50 hours of childcare a week for each child.

• Student Allowances for families with children will increase by $25 a week.

• Both the Working for Families (WFF) in-work tax credit and the WFF tax credit abatement rate will increase from 1 April 2016:

* Low-income working families earning $36,350 or less a year, before tax, will receive an extra $12.50 per week and some very low-income families will receive an extra $24.50.

* Working families earning more than $36,350 will receive more from WFF, but the amount is dependent on each family’s income and it won’t be more than $12.50 a week

* Families earning more than $88,000 a year will see slightly lower WFF payments, with the average reduction being around $3 a week

These increases have been tempered by part-time working beneficiaries needing to work 20 hours per week versus the 15 hours of the past.  Sole parents and partners of beneficiaries are also now expected to seek at least part-time work once the youngest child turns three, as opposed to five years previously.

Travellers Tax

A new Border Clearance Levy will be introduced from 1 January 2016, targeted to assist funding Biosecurity and Customs activity.  The levy is expected to be $16 for arrivals and $6 for departures. Almost half of arrivals and departures in the year to April were New Zealanders travelling for holidays, on business and for family reasons. Those that can afford to travel internationally are basically paying a new tax, raising $100m a year.

Slower out of the blocks

The $1,000 Kiwisaver kick-start incentive payment is no longer available for new sign-ups and will save $175 million in 2015/16.

Motoring ahead

ACC Levies will continue to reduce, In the 2014 levy round reductions were made to the Work and Earners’ Accounts. This year’s focus is on Motorists This includes reductions to the licence fee and a drop of 3 cents per litre off the petrol levy.

No longer flogging the dead horse

From 1 April 2016, the IRD will have more discretion around writing off penalties (not the core payment) for non-payment of child support.  The Government wanted to provide more tools for the IRD to work with parents on controlling and managing their child support debts.

GST tinker

Payments made to social housing providers will be GST exempt once legislation is enacted.

The Tax-man Cometh

The IRD are being given an extra $74 million over the next five years to beef up their investigative and compliance teams.  Historical data has shown that the IRD gets at least $7 extra for each $1 invested in reviewing tax payer compliance.  The Government is directing the IRD’s efforts towards property investment, a very political move given Auckland’s booming house prices.

 

Safe as houses

The focus in this budget is on damping down property speculation rather taking a slice off the family home.  There will be a two-year window for sales of residential property. If residential property is bought and sold within two years, it will be subject to tax. This does not apply for:

• tax payers selling their family home
• inherited property, and
• property that is being transferred as part of a relationship property settlement

The new rules will apply to properties bought on or after 1 October 2015. More detail is expected to come out in July. It’s important to note that if you intend to sell a property outside of the 2 year timeframe, the sale may still be subject to tax, as it may still fall within other rules relating to the taxation of property.

Land ownership

In addition, anyone buying or selling land, both New Zealand residents and non-residents, will have to provide an IRD number as part of the land registration process. All sales of land, other than sales of the main family home, will be subject to this requirement. In addition to providing a New Zealand IRD number, non-residents will also have to:

• provide their country’s equivalent of an IRD number, and
• open a New Zealand bank account

 

Boosting business

$345million has been targeted for business growth, with initiatives of

• $80million for R&D Growth Grants
• $25million to establish Regional Research Institutes for scientific research
• $113million for New Zealand’s higher education system

Unfortunately the balance of business growth initiatives are more around enforcing compliance, such as assisting councils with resource management and water care reforms and  enforcement of employment laws. The main area affected for businesses in New Zealand will be around those involved in Property.

What does this mean for me?

The budget was very much one that focus on social services and support in New Zealand.  $375 million on ACC, $790million on Child Hardship, $939million on Capital Investment (infrastructure), $305million on the Social sector and $122million on Housing.

Bill English said the Government wanted to target the 60-80,000 families who were most vulnerable in society and after looking at various options concluded that raising the benefit levels themselves is the most effective means to achieve this.