Budget 2015: Where's the broader long term plan?

Budget 2015: A much needed focus on vulnerable families but where’s the broader long term plan?

Today’s Budget means vulnerable families will get the support they need and most Kiwis’ back pockets will benefit from ACC levy reductions.

“What is missing from the Budget are signals about how the Government plans to tackle the long term challenges of an ageing population and a tax base that may not be fit for the future” says Lee White, CEO, Chartered Accountants Australia and New Zealand.

The $790 million child hardship package should achieve its objective of reducing poverty across 110,000 beneficiary families and 200,000 lower income working families – a vital outcome for New Zealand’s future.

Likely ACC levy cuts totalling $500 million over two years will be well received - by businesses, employees and car owners.

The removal of the $1,000 kick start subsidy is projected to save the Government $500 million over four years. With 2.5 million Kiwis already in the scheme the Government suggests the change will have little effect on enrolments but it seems unfair to those who were planning to join up when they started work or when they could afford to save.

“The changes to tackle Child Support debt are sensible. Most of the debt is penalties and many liable parents struggle to, or don’t, meet their obligations before penalties are imposed. Forgiving $1.7 billion of penalties over four years won’t affect the Government’s books much as it already recognises that most of the debt is uncollectable. The broader tax debt ‘book’ warrants a similar pragmatic response,” according to Peter Vial, Tax New Zealand Leader at Chartered Accountants ANZ.

Housing

The property tax measures will help improve compliance with the current rules but are not a panacea for the challenges facing the Auckland housing market. The broader package - including the Reserve Bank’s LVR restrictions; an additional $29 million over 5 years for Inland Revenue to bolster its property compliance activities; and a withholding tax for non-residents selling residential property - should help address housing demand.

The beefed up information rules are more important than the new two year bright line test”, says Vial.

Buyers and sellers of property will have to provide their IRD numbers and, in the case of non-residents, their overseas tax ID numbers and proof of a New Zealand bank account. This will help Inland Revenue identify and assess property speculators and traders. It will also mean IR will have far more accurate information about participation in the property market, which should assist the Government design its longer term housing strategy.

On the housing supply side the Government will fund housing development on Crown-owned land in Auckland. Again not a panacea but a step in the right direction. The key will be to get the development underway quickly.

What is missing?

“The Budget does not signal how the Government will address the long term sustainability of the tax base. New Zealand’s tax base is heavily reliant on revenue from income tax, GST and company tax. There are other options to explore – capital gains tax, land tax, pollution taxes etc. The Budget confirms that 11 percent of adults pay 50 percent of the income tax with 2 percent of adults paying a whopping 21 percent of the total income tax – and that is before the effect of Working for Families assistance. This just isn’t sustainable” says Vial.

Unsurprisingly no changes to the age of entitlement for National Superannuation are contemplated. An ageing population and significant national superannuation and health costs suggest a long term view is needed.

Tax simplification measures for small business are also missing. The Australian Budget provides SMEs with an immediate write-off for assets acquired for less than A$20,000. While this is only a short term measure and is made in a very different economic context it does make NZ’s $500 asset write-off threshold look stingy. The threshold has been the same for a decade and it is time it was reviewed. Increasing it to a more meaningful level would not break the Government’s bank.

“Overall the Budget is predictably responsible but doesn’t signal how long term challenges will be tackled. With the return to surplus delayed by a year the need to focus on fiscal prudence and net Crown debt reduction is acknowledged. However, there is still room for bolder measures to start to address the long term challenge,” says White.

ENDS

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