Robyn Walker is a tax partner at Deloitte
OPINION
Those who follow government budgets know the media have a habit of assigning nicknames to them (likely to the disdain of finance ministers).
Some of the more infamous budgets from a tax perspective include the 2005 “chewing gum Budget”, where some taxpayers would be 67 cents better off a week (… in three years’ time), and the 2008 “block of cheese Budget”, which offered $16 per week to the average worker.
At the time of writing, it’s not known what moniker has been assigned to Budget 2024, but through a combination of measures an average worker stands to be about $25 better off per week.
That’s enough to fund a 1kg block of cheese, some butter, and a loaf of bread with some change to spare, perhaps for some chewing gum.
See the Herald’s Budget coverage here
The announcements in Budget 2024 are consistent with the “Back Pocket Boost” package the National Party campaigned on last year.
Who gets how much will vary based on their level of income and other circumstances (such as number of children), with middle-income earners the biggest benefactors of the tax changes.
While the tax relief is modest, it will be welcomed by taxpayers who have been feeling the effects of “bracket creep” since the last tax threshold changes in 2010.
Of relevance to businesses is there are no substantial business tax changes included in Budget 2024 – perhaps a relief for companies who are still busy dealing with previous tax changes from the 2023 “mini-Budget”.
What was announced?
It was no surprise that “tax cuts” were part of the Budget. What we have seen is a movement of the tax threshold bands rather than changes to tax rates. These changes are to help correct the bracket creep that has arisen from wage inflation pushing workers into higher tax brackets since the last substantive rate changes in 2010.
These new thresholds will apply from Wednesday, July 31, 2024, so the countdown now begins for employers and payroll software developers to be ready for this change. Changes were originally earmarked for a July 1 start, but this date has been pushed out slightly on the advice that payroll providers would require more time to make necessary software changes. A last day of the month, midweek start date may leave some scratching their heads.
The maximum annual benefit for taxpayers under the threshold changes is $1043 (or $20 per week).
Less talked about in the lead-up to the Budget was adjustments to the Independent Earner Tax Credit (IETC). The IETC currently provides up to $10 per week to individuals earning between $24,000 and $48,000 (with the benefit currently abating once someone earns $44,000). The upper threshold for this credit has been extended to $70,000 (with abatement beginning at $66,000), meaning an anticipated additional 420,000 taxpayers will be eligible. The IETC exists to provide tax relief to middle-earners who don’t otherwise receive benefits such as Working for Families and New Zealand Superannuation.
Not technically a tax change, but to be administered by Inland Revenue, is “FamilyBoost.” FamilyBoost was announced in March and will allow parents to claim back up to 25 per cent of weekly early childcare costs, to a maximum of $75 per week. FamilyBoost will be available from July 1, 2024, with parents required to upload invoices to Inland Revenue on a quarterly basis. Only households with total income below $180,000 will be eligible (with abatement applying from $140,000), and this will be assessed by Inland Revenue using real-time pay data.
Far from the Budget headlines is some of the technical detail that sits behind changes to tax thresholds, which will be included in Budget legislation. A change to personal tax rates has consequential impacts on other taxes, and the implementation of a change in thresholds four months into the tax year means that in effect there will be “composite” thresholds in place until March 31, 2025, with the new thresholds only truly applying from April 1, 2025.
Budget legislation has been tabled in Parliament which:
As predicted, Inland Revenue has been allocated additional funding for “greater investment in tax compliance”, receiving an additional $116 million over four years ($29m per annum), which is anticipated to yield a net $150m in additional tax revenue each year.
The funding has not been earmarked to any specific sector or tax type, however, there is reference to compliance activities in relation to overseas-based student loan borrowers, and 10 per cent of the funding is allocated to debt management and chasing unfiled returns. The anticipated return is conservative given Inland Revenue reported it had a $8.92 return per $1 of compliance activity in its most recent annual report.
On its last sitting day (August 31, 2023), the 53rd Parliament introduced the Digital Services Tax Bill. The bill proposes taxing large digital services companies (with revenue exceeding €750m per year) 3 per cent on digital services revenue provided to New Zealand users. We detailed the mechanism of the bill in our earlier article.
The coalition Government re-tabled the bill in December, but it has not yet had its first reading (nor is it clear if it will even get to that stage). The Budget confirms:
“The current Government is still to decide whether or how to progress the DST. The forecasts currently assume a January 1, 2025, implementation and include revenue of $320m over the forecast period in relation to the DST with an additional $98m per annum expected beyond the forecast period. The OECD solution might be agreed and adopted (or otherwise make satisfactory progress towards implementation) instead of the proposed DST, which would generate different revenue than a DST.”
What this means is that the Government will still need to decide whether to forge ahead with a DST, as revenue raised from the proposal remains booked into the accounts with effect from January 1, 2025. This is optimistic given the number of steps still required to legislate and implement a new tax within the next seven months.
Inland Revenue has received additional funding for the development of a Crypto-Asset Reporting Framework (CARF), which is an OECD initiative. The CARF intends to ensure tax laws can be enforced on taxpayers deriving income from crypto assets, with additional revenue expected to arise from 2027/28 onwards.
'Developers are a good target for a council under financial pressure.' - Steve Evans