Budget 2014 – Managing a growing economy
“A (wafer-thin) surplus, more money for housing, education and exporters, a promise of tax cuts plus a sneaky tax surprise” were the Budget predictions.
If the Budget seemed very predictable beforehand, the actual details contain a few minor surprises. The $372 million surplus forecast for the year to 30 June 2015 is higher than anticipated (last year’s Budget predicted it would be just $75 million). The increase in the “operating allowance” for new spending of $500 million could be used for “modest” tax cuts but Mr English wouldn’t commit to a precise timetable for any tax cuts during his pre-Budget speech media briefing. Looking ahead, actual debt reduction won’t start happening until the 2017-18 year.
There were very few tax measures announced and little detail about these initiatives. Inland Revenue is getting an additional $132.3 million over the next five years to improve compliance but $84 million of that represents the expected debt write-off. How exactly the balance $48.3 million will be spent isn’t clear but it is expected to include recruiting additional staff, which would be welcome.
One of the few measures which will directly benefit small businesses reductions is a cut in ACC Levies of up to $480 million. The bulk of the possible reduction will be for motor vehicle levies. As a result, the average levy for a private motor vehicle could fall by $130 a year from 1 July 2015. There may also be reductions in levies for employers and the self-employed.
From the 2015/16 tax year loss-making start-up companies will be able to cash out all or part of their tax losses from R&D expenditure, while all businesses will be allowed tax deductibility for R&D “black hole” expenditure that is currently neither deductible nor able to be depreciated. There’s no detail about these measures which are together estimated to result in net refunds of $58.1 million over four years. The details will presumably be in the next tax bill due later this month.
The abolition of cheque duty is hardly surprising given its low yield, the decreasing use of cheques, and the Inland Revenue’s proposed changes to its standard practice about when payment is received.
There are changes to paid parental leave which will benefit part time employees. The $70 a week rise in the parental tax credit actually represents the increase needed to adjust for inflation since its introduction in 1999. However, this is counterbalanced by an increase in the abatement rate from 3.26 cents to 21.25 cents for each additional dollar of family income, to put it in line with the rest of the Working for Families scheme.
The sneaky tax surprise? The suspension of inflation adjustments to the student loan repayment threshold (currently $19,084 a year or $367 weekly) for a further two years until 1 April 2017. This will raise about $70 million over four years. (This gets double points for sneakiness as it was included in the announcements about boosting tertiary education and research, even though Student Loans are administered by the Inland Revenue).
Asked about changing the tax treatment of property Bill English quoted “significant administrative issues” around changing tax policies. In essence, nothing major can happen until the Inland Revenue’s IT upgrade is completed. In this context the Finance Minister noted that even “minor” changes to the Student Loan scheme cost $30 million.
Tucked away amongst the small mountain of papers contained in the Media Kit is the following table with some interesting statistics about who pays tax.
Some 586,000 taxpayers are expected to be earning above $70,000 in the year to 31st March 2015. These represent 17% of all taxpayers but pay 40% of all personal income tax. The biggest group of contributors are the 86,000 earning over $150,000 who collectively pay over $6 billion in personal tax or 22% of the total. As the Government’s surplus grows that group will undoubtedly be expecting to see their burden fall.
Terry Baucher – Tax Consultant – http://ift.tt/QLG6rJ
Insider notes from Terry Baucher from the lock down at Parliament