Clampdown on tax credits as changes kick in

Revenue Minister Peter Dunne. Photo / Hawkes Bay Today

Thousands of households could lose their eligibility for Working for Families tax credits from tomorrow, but companies and beneficiaries stand to gain as a raft of regulatory changes across government departments kicks in.

The changes include a cut in the company tax rate from 30 to 28 percent, a 3.75 per cent boost to benefit payments, and an across-the-board rollout of the 90-day trial period for new employees.

Revenue Minister Peter Dunne said closing up loopholes in the Working for Families scheme would make the tax system fairer.

The tightened eligibility criteria, announced in last year's budget, would broaden the definition of income to include revenue from family trusts and other sources previously ignored. People in quake-hit Canterbury would be exempt for up to a year.

The Inland Revenue Department did not give NZPA an estimate of how many families would be affected, but said the changes would lead to an estimated $32 million in cost savings.

Pricewaterhouse Coopers tax partner Geof Nightingale, who was a member of the Tax Working Group that recommended the changes, told NZPA the number of households affected could be in the thousands.

He cited the working group's report that found some 9700 people who claimed payments under the scheme also owned investment properties, enabling them to claim losses in order to reduce their taxable income.

Mr Nightingale said the changes were designed to better target the "enormous" amount spent on the scheme and make it less wasteful and unfair.

"The intention there is to burrow down and try to really identify what (people's) economic income is so the taxpayer doesn't subsidise them unnecessarily," he told NZPA.

Closing up the loopholes would not have a huge impact and was more of an "equity matter", he said.

The Government has not ruled out further changes to the scheme in this year's budget.

The criteria crack-down came as part of a second wave of Government tax reforms that started with income tax cuts and a GST hike in October last year.

Other new measures to be introduced tomorrow included a cut in the company tax rate, removing the ability for businesses to claim depreciation on buildings, and abolishing loss attributing qualifying companies, which allow owners to claim tax deductions at a higher rate than the tax paid on profits.

Mr Nightingale said taken together the changes would have a positive impact on the economy by promoting growth and savings.

The lower company tax rate was particularly positive for business owners.

"That leaves businesses with just a little bit more money to either reinvest in their business or distribute to owners, so that's got to be good news," he said. "It will also help anyone who's lost margins through the GST rise."

Welfare changes due to come into effect tomorrow will see benefits, pensions and student allowances increase by 3.75 percent.

Social Development Minister Paula Bennett said the increases were locked into legislation to give people certainty in the face of rising costs.

The domestic purposes benefit for sole parents will rise from $314.17 a week before tax to $326.82, while the standard student allowance will increase from $180.74 a week to $187.52.

Superannuation payments to single pensioners will increase from $308.29 to $321.07, while retired couples would receive $485.26, a $22 increase on the current rate.

Disability, sickness and independent youth benefits are among the other payments also set to rise. The adjustments include a 2 percent increase added in October to compensate for last year's 2.5 percent GST rise.

Childcare assistance payments will increase at a lesser rate and there would be no changes to childcare assistance thresholds.

Tightened income criteria for the community services card also come into effect, but the Ministry of Social Development said the number of people affected would be very low and the savings modest.

Employment law is also due for a shake-up as the 90-day trial period is extended to all employers.

The trial period was previously limited to employers with 20 or fewer staff until a law change last year extended it to all businesses.

Other changes include allowing employees to cash in their fourth week of annual leave if their employer agrees, and allowing workers to negotiate the transfer of a public holiday to another day.

Labour Minister Kate Wilkinson said the changes would help boost employer confidence and encourage them to take on more staff.

The employment changes have been attacked by Labour and unions, who say they are unfair and erode the rights of workers.

- NZPA